When it comes to sustainability and ESG strategies, organizations have advanced from using compostable straws to embedding sustainability into their business practices, processes, product development, operations, and strategy. Many organizations are rearranging their business models, re-organizing corporate structures, and spending substantial time, money and resources to embed sustainability into core strategies. As a result of this investment, many have come to see environmental, social, and governance (ESG) reporting, not as a regulatory burden, but as a tool to attract investors and financing.
Sustainability reporting, also known as environmental, social, and governance (ESG) reporting, has steadily grown in popularity over the past two decades. More and more investors and customers alike want to know what their brands are doing to help make the world a better place. As more and more companies shift to ESG reporting, they often have to reconcile questions about their brand strategy. The critical questions raised in ESG discovery often lead to bigger questions about their company as a whole: Who are we? Are our mission, vision, and values aligned with business goals?
Currently, companies have a long leash when it comes to ESG disclosure. In many cases, they are free to present ESG information in a way they consider to be most useful. The Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), United Nations Sustainable Development Goals (UN SDGs), United Nations Global Compact (UNGC), CDP, Task Force on Climate-related Financial Disclosures (TCFD) or the World Economic Forum’s International Business Council (IBC) metrics are all frameworks that will help companies benchmark priority issues while developing their ESG reports.
At its core, ESG reporting provides transparency to stakeholders on a company’s actions on sustainability and social responsibility and allows them to take credit for building a safer, cleaner, more just world. On the other hand, companies can no longer easily hide information from their stakeholders and external audiences, including any controversies that might negatively impact public perception. In this new digital age, consumers expect easy access to information and corporate governance on the impacts related to the products and services that they spend time and money on.
Negative information, including controversial events such as illegal activities and harmful product components, affect consumer purchasing decisions and may even provoke regulatory actions. On the positive side, consumers are also actively searching for more environmentally friendly and ethical companies to purchase from where sustainable reporting from businesses can be useful. Therefore, businesses are increasingly relying on ESG reporting to ensure key stakeholders, as well as larger external audiences including consumers, are provided with accurate and complete data on their management approaches across environmental and social impacts resulting from business activities.
ESG reporting helps supplement traditional corporate reporting activities by providing stakeholders with non-financial information to assess tangible and intangible business risks and opportunities. These key stakeholders could include the board of a company, the financial community, or business partners in the supply chain. In particular, ESG factors help indicate corporate resiliency, brand value, and growth potential. Stakeholders use this information to determine whether to invest in, purchase from, or have business relationships with corporations. These stakeholders increasingly stress the importance of making sure that ESG information is complete, high-quality, and comparable for effective decision-making. It is becoming more important for smaller companies to also ensure they are following best ESG disclosure practices for their own growth and reputation. As larger corporations are increasingly cascading down their ESG goals and management to the supply chain, smaller companies are obligated to provide ESG data and demonstrate progress to meet their customers’ ESG objectives and criteria.
Accountability is essential in all walks of life. Scrutiny and accountability help to ensure businesses are always following best practices and acting upon the material issues they regard as important. Any business can say they can care about environmental or social issues, but ESG reporting lets its behaviors and practices speak for themselves. To avoid instances of greenwashing, continuous audits that are carried out thus holding board members and stakeholders accountable for their behaviors regarding ESG issues.
Reporting is also good for comparability purposes. It can provide a benchmark for companies to work against by comparing them with other business leaders in their industries. The ESG benchmarks provide a way to systematically evaluate the performance of certifications, voluntary standards of other entities. With a goal to better understand a firm’s performance, implement various sustainability measures or to work towards reducing environmental impact. All these information is availed in an ESG report.
Creating a quality ESG report is paramount for demonstrating an organization’s commitment to sustainability. Companies want to do good, be ethical and responsible. But they also want to shine in the eyes of public, stand above the competition, and attract investors and financing. Reporting ESG performance in ESG reports is a way to make this happen.