In the corporate sustainability world, look left and right and you will find dozens of TLAs… These ‘three-letter acronyms’ are everywhere and can make it hard to navigate the space. Here we will define ESG reporting and help you understand its importance for you and your organization.
ESG stands for environmental, social, and (corporate) governance and the impacts, performance, and risks an organization has across these different areas.
The environmental pillar of ESG might include sub-categories such as climate change and carbon emissions, pollution and waste, impacts on the natural world like water contamination or impacts on biodiversity, and environmental opportunities in green building and technology. The social pillar of ESG covers sub-categories of human capital, chemical and product safety, people in supply chains, equity and inclusion, and social opportunity. The governance pillar of ESG includes corporate governance and behavior relating to ethics and compliance, corruption, compensation, tax transparency, and more. ESG covers a wide range of categories, but ultimately aims to capture a company’s impacts across environmental, social, and governance spheres.
When people refer to ESG they are likely referencing ESG reporting, which often manifests in the form of a single annually published document holding both quantitative and qualitative data on the different ESG categories and how a particular organization is performing across these categories. This “performance” measure is communicating the impact of a company as well as their added value to improve investor transparency. Qualitative data that may be included in an ESG report would be descriptions, disclosures, and case studies relating to certain categories or sub-categories, while quantitative data is more likely to be presented as a metric or statistic of an organization’s performance against ESG risks. ESG reports are most often created with an investor audience in mind, but more recently non-governmental organizations, employees, as well as consumers have sparked an interest in the content of ESG reports.
ESG reporting is distinct from sustainability reporting in that ESG is more concerned with a company’s relationship to social responsibility, corruption, and of course environmental impacts as well. A sustainability report is usually more specific and standardized by a specific organization or governmental agency, broadly relating to a corporation (or its product) and its relationship to the environment over an extended period. ESG reporting is also distinct from corporate social responsibility (CSR) in that ESG aims to be a set of sustainability disclosure standards and CSR is more of a business model with the end goal of enhancing society. ESG reporting, sustainability reporting, and embracing a CSR model are not mutually exclusive, but it is nonetheless important to not conflate them.
The actual presentation of ESG information in a document is not currently standardized, providing organizations with quite a bit of flexibility and freedom. However, it is encouraged to look toward recognized frameworks and standards when building out ESG reports. Some examples can be found through The Task Force on Climate-related Financial Disclosures (TCFD) and the European Commission. Regardless of formatting or presentation, organizations wanting or needing to create ESG reports would benefit from setting ESG strategies and goals, connecting with stakeholders, defining metrics, monitoring and measuring metrics, and communicating the results as part of their final deliverable.
With a full plate of other tasks, ESG reporting is something that should certainly be a priority communication tool for companies that have environmental, social, and (corporate) governance impacts. Considering the market and its saturation of greenwashing, ESG reporting can act as a tangible and sincere way of demonstrating your commitment to ESG goals and what you’re actually doing about it. An ESG report gives an organization the time, space, and freedom to communicate its efforts, results, and the nuance of its work that may otherwise get lost. ESG reports are nice because they can act as a one-stop shop for all of the questions your investors and stakeholders might have across the ESG umbrella. Investors and stakeholders are increasingly calling upon companies to disclose this information, and an ESG report might just be the easiest way to do this - for all parties.
Perhaps most importantly, ESG reports are now being required by law in some countries - something we can expect to be adopted in more places as time goes by. For instance, in 2021 the European Commission adopted the Corporate Sustainability Reporting Directive (CSRD) as an amendment to the previous Non-Financial Reporting Directive (NFRD) they had in place. Starting in mid-to-late 2022, up to 50,000 EU companies will be required by law to report on ESG criteria.
Like every voluntary and regulated reporting initiative, ESG reports have their concerns. Does it help people and investors make better business decisions? Is it clear that ESG reports and requirements make tangible differences in the environmental, social, and (corporate) governance categories? Are they trustworthy? These are all questions people and researchers are trying to answer as we double down on the world's most pressing issues. However, what we do know is that when driven by sincere goals and supported by tangible corporate action that goes beyond reporting, big organizations and companies can make real change.
If you’re looking for some help with your reporting and making real change, check out Toxnot’s forever free account to get started!