As sustainability becomes more critical for companies, ESG (environmental, social, and governance) regulations are gaining momentum around the world. Investors, customers, partners, and shareholders want to know that corporations are living up to their environmental and social commitments and marketing claims. With growing regulation and disclosure requirements, effective ESG reporting has become a critical element of an organization’s core business activities.
Alongside this growing demand for transparency, companies still need to cut costs, reduce complexity, and realize more efficient ways of doing business. Balancing all this while understanding and navigating the complexity of ESG can be challenging.
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While this might seem overwhelming, there is good news. Organizations that are proactive in ESG reporting can seize the moment and get ahead now. Companies that are serious about achieving ESG goals have also boasted a happier workforce and a healthier financial outlook.
What is ESG?
ESG is a self-regulating model that helps an organization be accountable — to itself and its key stakeholders, such as investors, customers, and employees. ESG topics represent risks and opportunities that will impact a company’s ability to create long-term enterprise value.
ESG areas of focus include:
- Environmental — encompasses such issues as climate change and greenhouse gas emissions, biodiversity loss, natural resource scarcity, water management, waste management, and energy usage
- Social — pertains to diversity, equity, inclusion, human rights, labor practices, supply chain management, political movements, culture, safety, training, product safety, and data security
- Governance — refers to how companies conduct their business, staff and govern their boards, compensate executive management, hold executives accountable, deploy and enforce policies, and publicly disclose relevant company data
Why is ESG reporting important now?
Government agencies around the world have stepped up their requirements for ESG reporting.
Earlier this year, the U.S. Securities and Exchange Commission proposed rule changes that would require certain climate-related disclosures in financial reports. The European Union Parliament adopted the Corporate Sustainability Reporting Directive, requiring all large companies to disclose data on the impact of their activities on people and the planet and sustainability risks they are exposed to. The Securities and Exchange Board of India mandated the top 1,000 listed companies provide a Business Responsibility and Sustainability Report.
All over the world, regulation and disclosure requirements are popping up — and investors are taking them into account. In fact, according to PwC’s 2021 Global Investors Survey, 79% of investors consider ESG risks and opportunities an important factor in investment decision making.
Improving your ESG reporting strategy can help your company grow financially and lead to a happier, more productive workforce, too.
KPMG reports that 70% of U.S. CEOs said their ESG programs improved their financial performance, and that 59% of CEOs are feeling pressure to increase their ESG transparency. And a recent Salesforce survey found that 82% of the global workforce wants their company to be more sustainable, too.
The World Economic Forum found that large corporations doing the best job of meeting stakeholder needs in the U.S. generate return on equity more than 4% higher than their peers, pay 12% more in dividends, and have outperformed in the market by almost 7% over the last five years.
With stakeholders ratcheting up the pressure on companies to report more transparently, ESG metrics will increasingly influence businesses’ performance. Shareholders want to know how their investments are improving the world. ESG is a business imperative.
How can you develop a successful ESG reporting strategy?
It’s important to set some guiding principles as you work to build a successful ESG strategy at your company.
1. Understand where you’re starting
The first step is to understand which topics are most important to your company and assess what data your organization is already tracking. Companies should ensure they’re aligned with three types of ESG metrics:
- Universal metrics: all companies, no matter their size or country of origin, should be measuring and reporting on topics such as governance, climate, and diversity
- Industry-specific metrics: data privacy, water use, and fair labor, among others
- Company-specific metrics: the topics most material to your specific business
Once you know your starting point, you can identify key gaps and prioritize.
2. Set targets and make a plan
Global systemic issues — such as poverty, human rights, and climate change — can’t be solved overnight. This can be daunting, but the most important step is to set targets and make an improvement plan over time; don’t just look for a quick fix. It may take a few years to publish a comprehensive ESG report.
But you can start small. Break it down, put what you believe out there, listen to your stakeholders, and stay consistent. This transparency will earn the trust of your stakeholders.
3. Leverage technology
The effective use of technology can help you manage ESG data in real time, streamline the reporting process, and increase efficiency. Improving your technology allows you to expand your capabilities and align to global standards.
ESG reporting requirements are rapidly increasing. Organizations need to set goals, start tracking against those goals, and report out to stakeholders.
You don’t need to do it all at once; the key is to get started. We can’t sit back waiting for the future to arrive — together, we can shape that future today.
Streamline ESG reporting to save time and costs
Improving your technology can help you meet growing stakeholder demand for ESG transparency. Using live data, automated alerts, and clearer insights can give a boost to your sustainability efforts.