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Today, Sustainability and Environmental, Social, and Governance (ESG) have become critical business terms for companies to implement and report on. More than 90 percent of S&P 500 companiesnow publish ESG reports in some form. But what exactly is ESG reporting, which are frameworks must I report on, and where does our business start?
Sustainability for business looks at what your company does for the Environment, for Social and for the Economy. You can read more about sustainability here.ESG (Environmental, Social, and Governance) on the other hand is a framework to measure and report on your sustainability. E.g. within the environment - what’s our total carbon footprint, or within social - what’s percentage of our workforce are women? Over the years the two terms are used interchangeably, but see Sustainability as the all-encompassing goal of what you are reporting on.
In other words, Sustainability is the what, ESG is the how.If you're now wondering what Impact Reporting is, it's slightly different - it is your own company's approach to publish the metrics you choose to report on, rather than reporting on the standards set by a 3rd party as this article will explore. For more on impact reporting, check out our separate article here.
Companies are increasingly expected to report on their ESG performance due to several compelling reasons.
1. Stakeholder Expectation:
First and foremost, stakeholders, including investors, customers, employees, and communities, are demanding greater transparency and accountability from businesses. They want to know how your company is managing your environmental impact, treating your employees, ensuring ethical practices, and governing your operations. ESG reporting enables companies to communicate their efforts and progress in these areas, building trust and credibility with stakeholders.
2. Risk Mitigation:
ESG reporting has become a vital tool for managing risks and identifying opportunities. It helps companies assess and mitigate environmental and social risks, such as climate change impacts, supply chain vulnerabilities, or labour issues which can have significant financial implications. By disclosing ESG-related information, businesses can proactively address these risks before they arise.
3. Global Agenda:
Governments and regulatory bodies worldwide are emphasising the importance of sustainable development and climate action. More and more companies choose to report on ESG because it aligns themselves to the global sustainability agenda. It allows companies to demonstrate their commitment to responsible business practices and contribute to achieving global sustainability goals, such as the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement.
4. Investor Interest:
Investors are increasingly integrating ESG considerations into their investment decision-making processes. They recognise that strong ESG performance is indicative of a well-managed and sustainable business, with companies with ESG being valued at 50% or more to investors. By reporting on their ESG, companies can attract a broader investor base, access sustainable financing options, and potentially enjoy enhanced market competitiveness.
5. Regulatory Requirement:
Governments and regulatory bodies are continually introducing or enhancing ESG reporting regulations. Compliance with these requirements is essential for companies to avoid legal and reputational risks. For example, in March 2023, the European Union's Corporate Sustainability Reporting Directive (CSRD) mandates large businesses to report on their sustainability performance, aligning reporting standards and increasing transparency. These regulatory requirements are what we’re going to explore further.Ok so you understand the background of sustainability and ESG and are clear with why more companies are asked to report on it. Now let’s dive into the different types of metrics you need to track.
When it comes to reporting your Sustainability and ESG, it all comes down to data. Without tracking the right data, you can’t report your sustainability. Just like you can’t publish your Annual Accounts without tracking your company finances, this is all part of the sustainability management process. Inside ESG, there are a variety of different metrics businesses need to track.
And because there are so many different standards to report on, there is no one list or standard that encompasses everything, frustratingly. But to get started, here are some examples of the types of metrics your business may need to track:
1. Environmental Metrics:
- Greenhouse Gas (GHG) Emissions: Measure and report emissions from operations, including Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy), and Scope 3 (indirect emissions from the value chain).
- Energy Consumption: Track energy usage and identify opportunities for energy efficiency improvements.
- Water Usage: Monitor water consumption and implement strategies for conservation and responsible water management.
- Waste Generation and Recycling: Quantify waste generation, track recycling rates, and implement waste reduction initiatives.
2. Social Metrics:
- Employee Diversity and Inclusion: Report on diversity metrics, such as gender, ethnicity, and age representation, within the workforce and management positions.
- Employee Health and Safety: Monitor workplace safety performance, record incidents, and track key indicators of employee health and safety.
- Employee Engagement and Satisfaction: Measure employee satisfaction levels, engagement, and retention rates through surveys or other feedback mechanisms.
- Community Engagement: Assess the company's involvement in community initiatives, philanthropy, and partnerships with local organisations.
3. Governance Metrics:
- Board Diversity: Disclose the composition of the board of directors, including diversity in terms of gender, ethnicity, skills, and experience.
- Executive Compensation: Provide transparency on executive pay structures, including base salary, bonuses, and long-term incentives.
- Anti-Corruption and Ethics: Report on policies, training programs, and incidents related to anti-corruption, bribery, and ethical conduct.
- Stakeholder Engagement: Demonstrate how the company engages with stakeholders, including shareholders, employees, customers, and local communities.
The types of metrics your business will need to track within an ESG framework will depend on a variety of factors; from your industry, size, geographical location, to even preference. For this reason alone, it’s why every business’ first step in sustainability should always be to conduct a Materiality Assessment.
Your materiality assessment is the process to identify what’s truly important for your business to focus and report on in sustainability. Something we do help every business with at Futureproof from day 1 of working together.
There are a plethora of reporting standards and frameworks out there for businesses to report on. Below is a comprehensive list of all the key standards to be aware of, as of writing today. You can download our full ESG Reporting Guide here.
Global Reporting Initiative (GRI)
Widely used sustainability reporting framework providing guidelines for economic, environmental, and social performance reporting.Sustainability Accounting Standards Board (SASB)Industry-specific disclosure requirements focusing on financially material sustainability factors.
Task Force on Climate-related Financial Disclosures (TCFD)
Recommendations for disclosing climate-related financial risks and opportunities.
Carbon Disclosure Project (CDP)
Platform for disclosing environmental impacts, including greenhouse gas emissions and water usage.
Dow Jones Sustainability Indices (DJSI)
Sustainability performance evaluation and creation of stock market indices based on scores.
United Nations Sustainable Development Goals (SDGs)
Global goals addressing social, economic, and environmental challenges for companies to align with.
Streamlined Energy and Carbon Reporting (SECR)
UK framework guiding reporting on carbon emissions and energy usage for transparency and reduction.
Workforce Disclosure Initiative (WDI)
Investor-driven framework for companies to disclose comprehensive and comparable workforce data.
Corporate Sustainability Reporting Directive (CSRD)
EU directive mandating comprehensive sustainability reporting by large businesses, amending the Non-Financial Reporting Directive (NFRD).
Global Real Estate Sustainability Benchmark (GRESB)
Assessments and benchmarks for environmental, social, and governance (ESG) performance of real estate portfolios.
Climate Disclosure Standards Board (CDSB)
Framework for reporting environmental information, with a focus on climate-related financial disclosures.
International Integrated Reporting Council (IIRC)
Integrated reporting framework for organisations to communicate their value creation story beyond financial performance.
Science Based Targets Initiative (SBTI)
Initiative helping companies set science-based targets to reduce greenhouse gas emissions and limit global warming.
UN Global Compact
Voluntary initiative encouraging businesses to adopt sustainable and socially responsible policies and practices.
UN Guiding Principles on Business and Human Rights (UNGPs)
Framework outlining corporate responsibility to respect human rights and avoid adverse impacts.
Principles for Responsible Investment (PRI)
Initiative promoting responsible investment practices, incorporating ESG factors into investment decision-making.
World Economic Forum (WEF) Metrics
Metrics developed by the World Economic Forum to assess and report on sustainability and social impact.
Getting started can seem overwhelming. But below are the 4 steps you need to follow (with the right guidance and resources for each) to help you can navigate the process.
1. Understand what your company needs to report on:
As we’ve learnt, ESG reporting standards vary depending on the nature of your business and its impact on the environment, society, and governance. To determine which standards are relevant to you, download our free ESG Reporting Guide to identify which reporting requirements are required for your business.
2. Complete a Materiality Assessment:
Conducting a Materiality Assessment is crucial to identify the key issues that are material to your business, industry, and stakeholders. This assessment will help you prioritise the ESG metrics that align with your business strategy and are most relevant to your stakeholders. Read our Materiality Assessment guide which outlines every step of what you need to cover.
3. Start tracking data:
Once you have a clear understanding of the ESG metrics that matter to your business, it's time to start tracking the data. Integrate sustainability into your business operations by implementing systems and processes to collect, monitor, and analyse the required metrics. This is what the Futureproof platform does for you, so speak to us today if you need help. You can also read our whitepaper on Leading a Sustainable Business which gives a simple structure for how you can easily integrate sustainability practices into your day-to-day business operations.
4. Prepare for reporting:
With your data tracking in place, you are now ready to report on the information required by the relevant ESG reporting standards. Ensure that you have accurate and reliable data to support your disclosures. This may involve internal verification processes and the use of appropriate reporting frameworks. Futureproof's platform and expert team can guide you through the entire reporting process, ensuring that your disclosures are transparent and aligned with the specific reporting standards.By following these steps, you can establish a solid foundation for your sustainability and ESG reporting journey. But it’s important to remember, sustainability reporting is an ongoing process that requires continuous monitoring and improvement. Embrace the opportunity to showcase your commitment to sustainability and demonstrate the positive impact your business is making.
As the importance of environmental, social, and governance (ESG) factors continues to grow, so does the pressure on businesses to demonstrate their commitment to sustainability. ESG reporting has become a key tool for businesses to communicate their environmental and social impact, as well as their governance practices.
By embracing ESG reporting, your business can contribute to a more sustainable future while reaping the benefits of enhanced stakeholder trust, improved risk management, and long-term resilience. Embrace the opportunity to measure and report on your ESG performance, and let your commitment to sustainability shine through.
Start your journey today and position your business for success in the evolving landscape of sustainability reporting.
If you're business is looking for help with Sustainability and ESG Reporting speak to us today. Our team will be happy to guide you through how our platform and support makes the process easy for your business.
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