ESG Reporting: How Companies Measure and Communicate Their Impact

ESG Reporting: How Companies Measure and Communicate Their Impact

If you are a newcomer to Environmental, Social, and Governance (ESG) business practices, you are probably wondering where to start with ESG reporting: how companies measure and communicate their impact?

 

ESG reporting has become an important tool for companies to demonstrate their commitment to sustainability to their customers, employees and investors. ESG reporting enables companies to measure, track, and show-case their good work on various environmental, social and governance issues.

 

So let’s start at the beginning. Let’s explore the importance of ESG reporting, some of the key metrics used to measure impact, and some common ways companies communicate their ESG impact to their audience.

ESG reporting: how companies measure and communicate their impact
ESG reporting: how companies measure and communicate their impact
Understanding ESG reporting

 

ESG reporting is the practice of disclosing a company’s environmental, social, and governance data and performance to stakeholders. Stakeholders can include investors, employees, customers and local communities. Reporting provides transparency and accountability regarding a company’s efforts to address important issues such as climate change, human rights, diversity and inclusion, labor practices, and good corporate governance. By disclosing this information, companies can demonstrate their commitment to sustainable practices, risk management, build trust with stakeholders, encourage customer loyalty, and potentially attract investors.

 

There isn’t yet a single standard for ESG reporting, so the very most important place to start is to find out what you are required to report on according to the laws and regulations where you are. These are “hard” skills, and you should talk to lawyers and accountants and local government and non-profit bodies that advise businesses.

 

    • A growing number of countries are introducing environmental reporting rules. For example, the European Union has environmental reporting standards, known as the EU Sustainability taxonomy. These rules apply to large and medium-size and publicly listed companies. The UK and Canada have carbon disclosure rules for large companies and financial managers, and in 2023, the USA may also introduce carbon disclosure rules for companies and funds listed on the U.S. stock exchange.

 

    • On the social front, there may be laws and regulations where you are requiring you to disclose on labor or human rights issues. For example, the UK’s Modern Slavery Act requires companies over a certain size to conduct due diligence and disclose actions against slavery in their supply chains.

 

    • Companies have to follow the relevant corporate laws and codes where they operate. These usually define certain standards for corporate governance, including any relevant financial, taxation and corporate board reporting requirements.

 

Of course, your business might not be large enough (yet) for most of these rules to apply to you. However, it may still be good for building your brand and staff loyalty to voluntarily integrate ESG reporting into your business practices as your team, customer base and investors grow.

 

Quick Start Guide to ESG and Sustainability Standards

Image by Gerd Altmann from Pixabay

 

 
Measuring impact: Key ESG metrics

 

To effectively measure impact, companies use various ESG metrics tailored to their specific industry and operations. You need to think about what is most relevant to your business and what you want to communicate to your stakeholders in terms of your ESG impact. Here are some commonly used key metrics:

 

 

  • Environmental Metrics: These metrics assess a company’s risks and impact on the environment, including greenhouse gas emissions, energy consumption, water usage, waste management, and biodiversity conservation.

 

  • Social Metrics: Social metrics focus on a company’s social risks and impact on its employees, communities, and broader society. They include employee diversity and inclusion, labor practices, community engagement, health and safety records, and human rights.

 

  • Governance Metrics: Governance metrics evaluate the effectiveness of a company’s leadership, board structure, executive compensation, and overall governance practices. They ensure transparency, accountability, and ethical decision-making within the organization.

 

Using metrics means going beyond stating your beliefs and principles. You have to measure and show your impact. For inspiration for concrete and measurable metrics for your business, take a look at these existing industry-specific metrics and frameworks:

 

  • The Global Reporting Initiative (GRI) offers impact reporting metrics linked to the UN’s Sustainable development Goals. Check out whether your sector is already covered here.

 

  • If you work in finance, the Task Force on Climate-related Financial Disclosures (TCFD) are definitive. They propose standards for disclosing carbon footprints and climate risks that are being adopted by many financial services regulators.

 

  • If you’re hoping to attract impact investors, you can check out the Global Impact Investing Network (GIIN), which produces guidance for impact investors, including on metrics.

 

 

Note that if you hope to attract investors with ESG, it is important to think about mitigating and reporting on ESG risks to the profitability of your business. Investors place much more emphasis on ESG risks than other stakeholders. Check out the Sustainability Accounting Standards Board (SASB). They produce materiality maps for sectors and sub-sectors. Take a look at the material risk map for your industry and think about how well you are or are not managing the biggest ESG risks to your business. You can also read our article on ESG scores, which explains more about how investors look at ESG risks.

 

 

Communicate ESG impact

 

Effective communication of ESG impact is essential to engage stakeholders and showcase a company’s commitment to sustainability. These are some of the typical strategies that companies adopt.

 

Engage Stakeholders:

Companies should actively engage with their stakeholders, such as investors, customers, employees, and local communities, to understand their concerns, priorities, and expectations regarding ESG issues. This dialogue helps companies identify key areas of focus and align their reporting with stakeholder interests. This way you are not wasting your time, but zeroing in on the ESG issues that most affect your business. Your team and your regular customers are a great place to start.

 

Storytelling:

Storytelling techniques in ESG reporting can make the information more relatable and engaging. Companies can highlight specific projects, initiatives, or success stories that demonstrate the positive impact they have made on environmental or social issues. For example, do you have a great story to tell about your impact in your community? Or perhaps a story about how you’re managing to reduce your plastic waste?

 

ESG Reporting: How Companies Measure and Communicate Their Impact

Image by Chen from Pixabay

 

Comprehensive ESG Reporting:

Medium to large companies should provide transparent ESG reports that include clear goals, performance data, targets, and progress over time. Smaller ones can put data on the record on a simple page. As you grow, so will your data and track record, and you will be able to speak credibly about your ESG impact since you started out. ESG reports should be easily accessible and use language that is understandable to a wide range of stakeholders. Don’t make up anything as you may expose your business to legal and repetitional jeopardy. Have data to back all your claims. Lawsuits and investigations are on the rise against “greenwashing”, where businesses are accused of presenting themselves as more sustainable than they truly are. Australia, South Korea and the UK are even launching crackdowns on companies that make misleading environmental claims in marketing and advertising, with fines in the millions. Never exaggerate.

 

Integrated Reporting:

This is for the big time. Integrating ESG metrics into financial reporting helps investors and stakeholders understand the relationship between a company’s sustainability performance, risks and its financial results. This approach provides a holistic view of the company’s value creation and long-term prospects. A growing number of countries are making climate-related risks and strategy a compulsory part of annual reports for public companies.

 

Technology and Visualizations:

If you have the budget, utilizing technology, such as data collection and processing software, interactive dashboards and data visualizations, can make ESG reporting easier for you and more engaging and accessible for your audience. Infographics, charts, and graphs can help stakeholders comprehend complex information and trends more effectively. If you’re in a high carbon sector, such as transport or construction, making the technological investment could help you lower your footprint and convey it to your customers.

 

 

ESG reporting: How companies measure and communicate their impact 

 

ESG reporting helps companies measure, track, and communicate their impact on environmental, social, and governance issues. By adopting robust ESG metrics, companies can effectively assess their sustainability performance and identify areas for improvement.

 

Transparent and comprehensive ESG reporting also helps build trust with stakeholders and maybe attract investment.  As interest in ESG and sustainability grows around the world, businesses that adopt concrete and reliable ESG reporting now will be better prepared for the future.

 

We hope we helped you start on your journey to ESG reporting, and measuring and communicating impact. You can sign up for our newsletter in the box below to keep informed. You can also check out our archive for more information about many aspects of sustainability, business ethics and ESG.

 

We love to hear from our readers! Share your experience and thoughts in the comments below!

Tags :
Carbon disclosures,Community impact,Environment,ESG and Sustainability Standards,ESG Basics,ESG metrics,ESG Strategies,Governance,Social,Social Risks,Supply chains
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