As the saying making rounds, ‘there is no planet B’, we need to protect what we have. If our place on this planet is in jeopardy, then sustainability is the word that is going to save us. Building a sustainable business that cares both about company profits and environmental safety, may be difficult but is attainable with the implementation of ESG standards.
ESG implementation without a proper evaluation of the company’s ESG performance within a defined timeframe might lead you nowhere. Often companies face issues in evaluating their scale of achievement after implementing ESG standards. This eventually might lead to disruptive sustainability solutions or the company being termed as unfit to meet sustainability guidelines.
That is where a definitive reporting framework became a necessity and ESG reporting standards were introduced to various organizations. This reporting system ensures that almost all sustainability parameters are checked and the business is safe based on the ESG elements for a sustainable future.
This article here is a definitive guide to what a sustainability reporting system is actually all about and its importance, then we will discuss some popular frameworks for the reporting system, along with its future prospects of designing a better place for us to live.
What is ESG reporting?
ESG reporting is the practice of revealing a company’s performance in accordance with the issues defined by the ESG framework. Recently, this reporting system has gained traction in its popularity and demand as investors are now more concerned about how businesses handle their stakeholders and are inclined to non-financial data to generate a better return on stock investments.
As per World Economic Forum reports, many organizations have decided to voluntarily share the ESG metrics of their business. Sometimes, this act of reporting required the revelation of some internal organizational information otherwise not meant to be disclosed, yet the companies did not shy away.
ESG (or Environment, Social, and Governance) are the three factors that influence the robustness of a business. It is a comprehensive framework that secures environmental and social impact along with active compliance with government structures.
Reporting on ESG factors aids companies to improve their operational and functional transparency and hold accountability for the business. This in turn helped them to achieve their goals of being a more sustainable and socially responsible business.
ESG evaluation and reporting provide highly useful insights that help to build a long-term advantageous trade for the stakeholders. It allows organizations to measure sustainability, analyze risk factors, and evaluate and report on ESG performance.
Why does ESG reporting matter to organizations?
There are several reasons why the ESG reporting system is now been observed as an important player in a company’s growth.
1. Identification and management of risks
This reporting structure is progressively turning into a factor responsible for identifying risks at various stages of business operations and managing them accordingly. Once the report has been created on the social and environmental impacts along with governance practices, it gets easier to understand and analyze the potential risk factors.
Also, it lays bare the areas of potential opportunities for the business. Suppose, a report on carbon emissions has been generated. Companies can take this opportunity to identify the areas which caused this and act immediately to reduce environmental and social impacts, and thus, save costs on it.
2. Influential on investors and stakeholders
The sustainability report of a company can also be used as great equipment to influence investors and stakeholders. It is the validation of being a responsible organization that follows accountable business practices.
ESG reporting help attract investments and acknowledgment from stakeholders who appreciate sustainability, and environmental and social responsibility.
3. Improves reputation
Suitable ESG reporting can help organizations build a significant amount of trust and reputation among their stakeholders. Through the transparency of its ESG performance, a company can demonstrate its commitment to sustainable business practices, and thus, improve its reputation with employees, customers, and other stakeholders.
4. Legal and regulatory requirements
Due to the significant increase in regulations and norms to meet ESG standards, it is becoming exceedingly important for companies to practice and produce reports on their corporate sustainability performance.
A company must be able to produce reports on its environmental, social, and governance activities, failing which it might face legal and reputational penalties.
Some of the most popular ESG frameworks
Now that we are well aware of the importance of ESG reporting, let us take a look at the most popular ESG frameworks.
1. CDP (or Carbon Disclosure Project)
This approach focused on climatic changes, is frequently used by investors to evaluate the risks and possibilities for firms concerning the climate. It demands ESG disclosures by businesses revealing their carbon emissions, energy usage, and climate change plan.
2. TCFD (or Task Force on Climate-related Financial Disclosures)
This framework created by the Financial Stability Board (FSB), focuses on the financial risks and opportunities based on climate change. It requests information from organizations on their risks, opportunities, and plans related to climate.
3. GRI (or Global Reporting Initiative)
GRI is a comprehensive framework intended for sustainability reporting that addresses a variety of ESG concerns. This includes governance, environmental consequences, labor practices, and issues related to human rights. It offers a standardized reporting structure so that business organizations may evaluate their ESG performance in comparison with their competitors.
4. IR (or Integrated Reporting)
The aim of the IR approach is to provide a combination of financial and non-financial data in an exhaustive report to present an intricate study of a company’s performance. In order to demonstrate how they can generate value over the short, medium, and long term, it requires businesses to produce a report on their strategy, governance, performance, and other sustainability prospects.
5. SASB (or Sustainability Accounting Standards Board)
The SASB framework offers certain requirements for ESG reporting that are industry specific, concentrating on problems that are financially significant and crucial to each business. The report based on the SASB framework addresses a variety of issues related to climatic changes, supply chain management, and human resources.
Future of ESG reporting
Growing awareness among investors, stakeholders, and regulators on ESG reporting has led to the demand for transparent and accountable companies. Having said that, due to the increasing pressure on companies to shoulder ecological and social responsibility, the reporting system has been sighted as an essential factor to ensure consistent business growth.
Through increasing demand for ESG or environmental, social, and governance issues being addressed, the companies shall be facing a dire need for a highly-effective reporting system in the near future. The standardization of reporting frameworks will continue to take place in that scenario.
At present, there are several reporting standards and frameworks which may create a difficult situation for a company to evaluate its regular ESG performance. This will also produce complications for investors to prepare for an informed decision.
Also, the use of technology in the formulation of appropriate data-backed reporting is possible to continue and face many advancements in the future. Technological advancements such as blockchain and artificial intelligence may simplify and automate the complex reporting process. This may make reporting much easier and budget friendly for companies to report their performance based on ESG factors.
Lastly, while the governments and regulation formulators are increasingly seeing the importance of ESG issues, there may be revised and much more improved rules and regulations to protect the ESG elements of this planet.
This might result in the standardization of the reporting framework making the path easier for investors and stakeholders to take decisions.
Despite the wide acceptance and critical importance, the process still remains complex and difficult to understand and apply. The ESG reporting software from Ethos Sustainability Solutions, help to ease the intricate process involved in it through a quick and proper collection of ESG data. When the data is accurate, this tool is further able to assemble information related to sustainability and coordinate with the business perspectives.
Our software solution is well-versed with established ESG frameworks and standards, and in compliance with norms and regulations provided by the government. We offer innovative reporting tools for tracking and managing your organization’s sustainability performance.
As we say that sustainability is a team effort, it does take a team of professionals to ensure that your business meets the sustainability standards. Our expertise in corporate sustainability consulting with top-notch ESG reporting software makes Ethos an exemplary sustainability service provider that can make your business worthy for the planet and the next generation.