The world has been countering challenges like climate change, social inequality, and corporate transparency issues for decades. As awareness of these issues increases, so does the demand for solutions.
Consumers and investors now expect companies to participate in adopting and implementing sustainable practices to address these issues from a risk perspective and do good for the environment and the communities in which they operate. Regulators are now seeking to add risk disclosures concerning different topics of ESG or sustainability. Because of that, corporations are not solely focused on balance sheets and profit and loss statements but also on providing stakeholders with precise data on their sustainability efforts.
ESG refers to three key focus areas for businesses and organizations that are often used to evaluate a company's performance. In the past, companies chose to address sustainability as the first step in their ESG reporting, focusing primarily on the environmental aspect of a company's performance. Nowadays, sustainability may refer to all aspects of ESG, not only the environmental aspect.
This article provides an introduction for companies looking to learn about sustainability reporting.
Importance of sustainability reporting
To demonstrate their sustainability efforts, companies now create sustainability reports containing statistics illustrating their endeavors related to environmental, social, and corporate governance (ESG) issues.
The benefits of sustainability reporting include attracting responsible investors, tracking progress, and increasing company performance.
Sustainability reports can also improve public perception of a corporation by showing their commitment to local communities and a better world. Providing a report with ESG data is a win/win for companies because it serves the new consumers' expectations.
Lastly, in some countries, sustainability reporting or ESG reporting is mandated by regulation; thus, reporting is becoming more of a “must have” than a “nice to have.”
How is sustainability reporting done?
The sustainability report is the end product of a process of understanding the risks and opportunities of the company. This is usually led by the CEO and the board, who need to learn about the regulations and standards, how their company’s product impacts the environment and the community and what the risks are. There are a host of issues that need to be addressed.
This starts with establishing a materiality assessment and choosing a reporting framework- The CEO, the CFO, the sustainability/ ESG team, and the board address the risks and opportunities. This could be done through consulting, a technology platform, or a combination of both.
This should lead to an action plan to embed ESG / sustainability into the business processes- Starting with data collection and data management from across the organization and its supply chain.
6 tips for writing a sustainability report
Here are some helpful tips on how companies can develop a strong sustainability report:
- Create an outline (include a summary of what the report contains):
An outline establishes the context for a company’s industry-specific objectives, so stakeholders can better understand key data points. This overview sets the stage for the rest of the report, giving readers a clear roadmap of what it encompasses.
- Define sustainability KPIs and gather data:
In a business sustainability report, presenting the corporate sustainability strategy is essential, including its present and future benefits and the associated opportunities and risks. Companies should gather quantitative metrics according to the chosen reporting frameworks to show the ESG status and progress. The report should also describe future goals / key performance indicators (KPIs) and detail the plan to achieve them and how they are an integral part of the corporate strategy.
- Elaborate on the strategic goals and their status:
Describe corporate sustainability goals in the short, medium, and long term with KPIs, why they matter, and describe current progress toward reaching them. It is recommended to add industry benchmarks for the different KPIs.
- Provide a list of different sustainability activities:
Highlight different corporate sustainability activities and how they impact the company’s goals. Examples include using renewable energy to combat climate change, revamping hiring practices and developing employee training to improve social responsibility, and enhancing stakeholders' engagements to better address their needs and concerns. It is vital to be detailed and thorough to fully convey the efforts.
- Highlight a status report:
Provide key figures and progress toward goals, and don’t be reluctant to mention improvement areas and key challenges. ESG reporting is all about transparency, and being straightforward can only increase shareholder trust and provide further guidance on strategy.
- Conclude and give recommendations:
Summarize relevant statistics, successes, and failures, and recommend future strategy adjustments. A corporate sustainability strategy can be a work in progress, fine-tuning over time to better meet targets and lower risk in the long term.
How do companies measure ESG?
ESG reporting has become an established method for corporations to provide their stakeholders with transparency on their sustainability efforts. However, the motivation for this is becoming more regulation-based than voluntary. Companies' incentives to publish a sustainability report are rising due to emerging regulations such as the SEC in the US, ESRF in the EU, or fines for incorrect disclosure, what is commonly called “greenwashing”.
Companies can choose from several sustainable reporting frameworks and produce reports according to those guidelines. Here’s a list of a few trusted ESG frameworks:
- Sustainability Accounting Standards Board (SASB)
- Global Reporting Initiative (GRI)
- Carbon Disclosure Project (CDP)
- Task Force on Climate-Related Financial Disclosures (TCFD)
While the SASB and GRI standards report on all ESG metrics, the CDP and TCFD are dedicated to environmental information. Depending on a corporation’s specific industry, it may choose to go with a comprehensive ESG framework or one that concentrates on climate change, like CDP.
The need for standardized global accounting regulations led to the IFRS Foundation formally announcing in 2021 the creation of the International Sustainability Standards Board ‘ISSB’, which will be in parallel to the International Accounting Standards Board under the IFRS Foundation. This is a very significant development in ESG Reporting and will help streamline a fragmented reporting landscape.
Qualities of a good sustainability report
Currently, all ESG / sustainability reports differ in content, but the good ones share several qualities.
Be aspirational but action-oriented
Having ambitious corporate ESG / sustainability goals is a worthy cause, but actions speak louder than words. While noting demanding targets is good, they should be reasonable, and a strategy should be in place to meet them. Clearly defining KPIs and detailing sustainability efforts give shareholders the transparent information they need.
Be mindful of the data
ESG reporting is data-driven, and knowing that can help produce a good sustainability report. Methodically gathering data, measuring against targets, and presenting it to stakeholders are excellent ways to demonstrate transparency and build trust. That way, shareholders have concrete figures to compare and can make better investment decisions.
Investors want sustainability reports that measure a company’s progress toward its goals. Corporations can achieve that by concentrating on reports with concise, consistent data points that show their efforts to reduce risk, and increase social and environmental impact together with business impact.
Connecting with stakeholders ensures sustainability reports relay the data they want and address any concerns they might have. Stakeholders can also provide input on a report’s style, content, and medium so future versions can better meet their expectations. That turns sustainability reporting into a more collaborative process, meaning corporations can better serve their shareholders and society as a whole.
Sustainability reports should be available for all stakeholders
Providing ESG reports to all stakeholders is essential as corporate sustainability becomes increasingly significant. Whether an investor owns 15 shares or more than 1,000, they deserve to know the company’s progress toward its sustainability goals.
Because of that, companies now provide their sustainability reports through various channels, including new ESG or sustainability pages or PDFs on their website and social media platforms. Providing easily accessible ESG reports is beneficial for the company. This helps showcase concrete progress toward sustainability targets, in turn generating goodwill.
As the call for increased corporate social responsibility grows, addressing sustainability issues is becoming an essential aspect of companies’ core strategies. Paying attention to ESG challenges protects the environment and helps society while improving long-term financial performance and appealing to investors.
Concise and straightforward sustainability reports give stakeholders, big and small, the information they need to make better investment decisions.
*Disclaimer: This summary is for general education purposes only and may be subject to change. ESGgo, Inc., and its affiliates (the “Company”, “ESGgo”, “we”, or “us”) cannot guarantee the accuracy of the statements made or conclusions reached in this summary and we expressly disclaim all representations and warranties (whether express or implied by statute or otherwise) whatsoever.