ESG Reporting - A Comprehensive Guide for Businesses

Among the growing concerns regarding climate change, social inequality, and corporate responsibility, (environmental, social, and governance) ESG reporting has become a tool for businesses to demonstrate their commitment to sustainability.

Through these ESG reports, your organization can disclose your impact on the environment, society, and governance practices, setting yourself apart from competitors. Because the transparency ESG reporting offers is growing more and more attractive to investors, sustainability has now become strategically imperative for organizations positioning themselves for the future.

The question is, how best to disclose (and improve) your impact when there are different ESG frameworks and standards? What would your report measure?

Given that we have a dedicated ESG practice, we’re going to help answer those questions—in this blog post, we’re going to provide a comprehensive guide to ESG reporting, including more on why you should invest in ESG reporting in the first place, what factors these reports cover when you do, and the different standards and frameworks you can choose to be measured against. 

Why Businesses Should Invest in ESG Reporting

As we mentioned, ESG is quickly becoming a differentiator in the market as consumers and investors are beginning to prioritize supporting organizations whose values align with theirs—sustainability included—and your providing an ESG report can help them decide.

But in fact, there are also other benefits and advantages to be gained should you invest in an ESG report:

• Improved Stakeholder Trust: ESG reporting and the transparency it provides can also help your organization build trust with current stakeholders, including employees.

• Enhanced Risk Management and Long-Term Financial Performance: ESG reporting can help you address your organization’s ESG issues, which in turn mitigates your exposure to reputational and financial risks like regulatory fines, lawsuits, and supply chain disruptions.

• Compliance with Regulatory Requirements and Supply Chain Requests: The surge in importance of ESG data is concurrent with the emergence of related regulatory requirements and industry standards that require compliance, including the California Climate Corporate Accountability Act, which mandates certain companies to disclose ESG data, including their supply chains. Moreover, companies are also taking it upon themselves to enlist their vendors in addressing their environmental impact by sending requests for ESG data—if you’re already engaged in reporting your ESG metrics, answering these will be all the easier.

• Attraction and Retention of Talent: Customers and investors aren’t the only ones trying to work with organizations that align with their values—your prospective employees are as well, and ESG reporting, with its demonstration of your social responsibility, can help you to attract and retain talent.

What an ESG Report Covers

ESG reporting can facilitate all these advantages through the information it contains. Though different standards and frameworks may have different focuses or objectives, your ESG report will disclose specifics regarding your organization’s operations and/or risks in the three areas that make up the acronym:

• Environmental stewardship;
• Social responsibility; and
• Corporate governance.

Environmental Factors

When your environmental stewardship is measured as part of your ESG report, that concept can be broken down into the assessment of a few more specific issues:

• Climate change impact: What physical and financial risks does climate change pose to your organization’s operations and supply chain?

• Carbon footprint: How much greenhouse gas emissions does your organization produce, both directly and indirectly?

• Energy consumption: Does your organization use renewable and non-renewable energy sources? Do you have energy efficiency measures in place?

• Waste management: How does your organization manage waste reduction, disposal, and recycling?

Social Factors

Also included in your ESG report will be information on how your organization impacts society in a number of ways:

• Labor practices: How complex is your workforce (e.g., its size, regional layout, and the intensity of labor? What is the relationship between management and workers? Does your environment maintain employee health and safety? Do you provide fair wages and working hours? Do you have worker protections and employee engagement efforts, and how strong are those?

• Human rights: How does your organization—through policies and practices or otherwise— identify, prevent, and mitigate adverse impacts related to human rights, including freedom of association, non-discrimination, and child labor?

• Diversity and inclusion: Do you have initiatives, such as employee resource groups, in place to help promote diversity and inclusion within your workforce?

• Community engagement: How is your relationship with your local community? Does your organization perform any philanthropic activities?

Governance Factors

And finally, your ESG report will also evaluate your internal corporate governance practices:

• Board composition: How is your board structured? Is it independent? Is it diverse?

• Executive compensation: What are your policies and practices related to executive pay? Are there performance-based incentives?

• Risk management: What’s your organization’s approach to identifying, assessing, and managing risk (including those regarding cyber security and the supply chain)?

• Ethics and compliance: Do you have policies and procedures in place related to your standards for ethical conduct and regulatory compliance?

ESG Reporting Standards vs. ESG Reporting Guidance

This information can be presented or featured in your report in a number of ways, depending on whether your organization decides to standardize your ESG efforts or if you instead take a broader approach using recognized ESG guidance.

ESG Reporting Standards

When you choose to homogenize your ESG efforts, you choose to report on your sustainability initiatives and how they meet established thresholds. Of these, there are several different standards and frameworks you can choose from:

• Global Reporting Initiative (GRI): According to its website that cites independent research, the GRI ESG standards are the most widely used globally—applicable to all organizations, these sustainability reporting standards pull principles from different governing bodies such as the UN, OECD, and ICGN to reflect the broad and comprehensive expectations for responsible economic, environmental, and social impact.

• Sustainability Accounting Standards Board (SASB) — Now the International Sustainability Standards Board (ISSB): Though also internationally recognized, the SASB standards are unlike the more holistic GRI in that they focus more on a subset of sector-specific, financially material issues—meaning, you’re able to dive in deeper to identify your sustainability-related risks most likely to affect your financial concerns.

• Task Force on Climate-Related Financial Disclosures (TCFD) — Now the International Sustainability Standards Board (ISSB): The four pillars of the widely adopted TCFD standard— Governance, Strategy, Risk management, Metrics, and Targets—are specific to your climate-related disclosures as driven by the idea that if you understand and report your climate-related risks and opportunities it will help lead to a more stable and sustainable economy.

• Carbon Disclosure Project (CDP): A global non-profit, the CDP provides a questionnaire that is specific to an organization’s environmental performance—including your greenhouse gas emissions, water usage, and deforestation risks—so that you can better understand and manage your impact. CDP also serves as the main carbon reporting repository for brands managing their suppliers’ carbon plans, and for TCFD (now ISSB) reporting.

Many of these standards are complementary with each other, or aligned in some way—it’s up to each organization to decide which would be best for your needs and to assist your stakeholders in comparing and evaluating your ESG performance.

ESG Corporate Commitments

Aside from these established frameworks, you can also choose to report your efforts to align your organization with different global sustainability guidance to demonstrate your contribution to sustainable development:

• United Nations (UN) Global Compact: Together with reporting requirements called the Communication on Progress, the UNGC contains a set of 10 corporate principles upon which companies are expected to enshrine in their direct and indirect spheres of influence.

• UN Sustainable Development Goals (UN SDGs): A set of 17 goals for sustainable development, the UN SDGs address issues such as poverty, education, and climate action, and you can coordinate your ESG initiatives with these and report this demonstration of your contributions to global sustainability.

• UN Principles for Responsible Investment (PRI): The PRI is a set of six principles that guide the integration of ESG factors into investment decisions and can be used to demonstrate your commitment to responsible investment practices.

Frequently Asked Questions Regarding ESG Reports

How Do I Choose the Right Framework for my ESG Report?

A great starting point is to first determine what your material ESG issues are and then consider the framework that is most holistic and leaves room for reporting as material issues change priority or new issues emerge.

While the SASB industry supplements can serve as a foundation for understanding what others in your industry are reporting on, make sure you also take ownership of your materiality process to ensure that ESG reporting is future-proof.

What is the Difference Between an ESG Report and a CSR Report?

There’s no fundamental difference—the ESG acronym is only the latest in terminology, while Corporate Social Responsibility (CSR) was the preferred term between the 1970s and the 2000s. Other overlapping phrases include:

• Sustainability
• Corporate Responsibility
• Corporate Citizenship
• Social Impact,
• Impact, and more.

But these terms are all broadly the same, depending on the approach.

Can Small Businesses and Startups Benefit from an ESG Report?

Organizations of all sizes can benefit from some kind of ESG reporting and its demonstration of a commitment to transparency and sustainability, as a company that is well positioned in ESG is well positioned to respond to market, investor, and employee expectations.

How Often Should Your Organization Produce an ESG Report?

Though this really depends—mostly on your organization and industry—producing an ESG report annually is generally accepted as best practice. (Some major brands provide quarterly ESG updates, but this is still the exception rather than the “rule”.)

Lead by Example: Invest in ESG Reporting

As the globe continues to come together to create a more sustainable economy, doing so requires a greater understanding of individual organizations’ environmental impact, social responsibility, and corporate governance, which ESG reporting can provide. Investing in these reports can also aid you in improving your brand reputation, managing risks, complying with regulations, and attracting talent, and you have a number of framework and guidance options to choose from to measure your impact.

Should you need further assistance in deciding your next steps forward regarding your ESG reporting, our team at Schellman is ready to help. Contact us today to speak to one of our experienced professionals who can point you in the right direction and provide even more context on what you can expect when getting started in disclosing your ESG metrics.