It’s not exactly a new development that companies need to show exactly how they are impacting their area of operations. Public and private scrutiny is growing and companies need to be on top of their ESG reporting to avoid reputational risks, fines, and other problems. To do this effectively businesses need to actually understand the best practices and develop detailed, data-driven strategy plans for how they will gather, verify and present this information.
What is ESG Reporting and why is it important?
Companies are being held accountable for their impacts on the environment. And this doesn’t just refer to the literal environment (E,) this can be an important part of how a company affects communities around it and the people within it (S). Furthermore, businesses don’t exist in a vacuum, they must operate in a nation-state with its own laws and governance. Through taxes, jobs, and other impacts, companies do also leave an impression on governments (G), which needs to be measured and reported.
In short, ESG reporting involves gathering verifiable data to prove that a company is meeting specific standards. Depending on the location, the inability to meet these standards can lead to fines and other forms of punishment. As the world decarbonizes, companies are being held to a higher standard and need to show that they are actually meeting the requirements put in front of them. Companies need to work out an effective strategy before regulatory frameworks get more strict, as the costs to change operations on the fly are considerably more difficult than to have a plan in advance. Good ESG standards also help companies with resiliency when prices and costs fluctuate.
Standards to keep in mind
The data necessary for reporting isn’t whatever random information a company can find, there are internationally agreed standards. A good place to start for “E” is the Carbon Disclosure Project which has some guides for how companies can best show their impacts and avoid accusations of greenwashing. More broadly, the ISO 26000 standards cover social and governmental impacts.
It is also worth exploring the Global Reporting Initiative (GRI) which helps thousands of companies standardize and understand some of the best ways to actually show their data effectively. If a company is in Europe, they also need to explore the standards set by the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Financial Disclosure Regulation (SFDR).
Steps a company should take to report effectively
Companies need to develop a strategy. Randomly mixed and matched data, from unrelated teams will end up looking confusing and might even cause unintended issues. It’s best if leadership has a roadmap and all reporting teams have consistent means of communication. Data should be gathered over a longer period of time to show consistency, improvements and help contextualize a company’s impact.
For the data to be usable, a company does have to be transparent. Greenwashing is a hot-button issue and businesses should not risk reputational damage just because they chose to modify data or hide sources. In general, it’s smart to see how industry leaders present and frame their ESG information and follow those frameworks. It is also worth setting goals and using data to show a commitment to them. This does require a degree of risk, as a company might end up missing a goal. But in the long term, it helps show a business’s commitment to helping the environment and being socially conscious.
Overall, it helps to have a dedicated ESG team to coordinate and research this topic. While reporting should be done company-wide, it can be a blow to productivity if all teams are having to sort through standards, laws, and strategies. Instead, teams report data to a dedicated ESG team and they can focus on the task of contextualizing and standardizing it.
What to keep in mind?
Developing a long-term strategy plan and short-term goals is easier said than done. Companies need to weigh shifting regulatory frameworks, expenses, risks, and opportunities. The bottom line is that without experience, there are a lot of pitfalls a company might run into. Consultants and lawyers offer good advice but ultimately are often expensive. A forward-thinking business will learn from its peers and see what works and what doesn’t in practice.
The Global Summit on Scope 3 Emissions Reduction will bring together key industry experts to learn more about reporting strategies & carbon data management in a small-scale, industry-driven event, on 20-21st April 2023 in Amsterdam, the Netherlands. The two-day, hybrid event features in-depth case studies of supply chain transformation, carbon accounting, and networking breaks dedicated to exchanging insights and expertise on tackling Scope 3 emissions. Visit future-bridge.eu and netzero-events.com or follow us on our social media to track other energy use and decarbonization events.