These days, businesses are no longer answerable only to their customers or a single owner. Everyone, from shareholders to clients to the larger community, demands transparency and accountability. Companies need to show they’re operating ethically and sustainably, and because the clock is ticking on the climate crisis, investors and shareholders want to see quantifiable action now.
To meet these expectations, many businesses are implementing Environmental, Social and Governance (or ESG) reporting programs. These reports detail their performance in a variety of areas from a company’s carbon footprint to its diversity and inclusion employment metrics.
Putting all that information together can be daunting, requiring input from multiple departments, locations and sources. It can also involve quantifying emissions, not only from your direct business operations, but from subsidiaries, franchises, investment portfolios, and within the value chain.
In this article we take a look at what ESG reporting entails, why it’s important, and how AMCS can help you report on ESG without taking unnecessary resources from your company’s operations.
what is ESG reporting?
There are three key areas involved in any form of ESG disclosure, namely: environment, social, and governance.
1. environment
The Environmental component of ESG reporting often includes metrics around:
- Energy efficiency
- Climate change
- Carbon emissions
- Biodiversity
- Air and water quality
- Deforestation
- Waste management
While you may have some information on your direct emissions and releases, such as burning natural gas to heat the building or using pollution control technology to reduce wastewater discharges, ESG reporting frameworks also require reporting on what are called “Scope 2 and Scope 3” greenhouse gas emissions. These are indirect emissions from sources like purchased electricity as well as emissions from the larger company supply chain.
Scope 3 emissions in particular can be difficult to quantify because they require data collection from outside parties like suppliers and customers. And if your ESG team doesn’t fully understand what constitutes a Scope 3 emission, there’s a risk of double counting what’s already been reported as a Scope 1 emission elsewhere.
But doing the work in quantifying Scope 3 emissions is important. These can often account for 50% or more of your total carbon emissions, so ignoring them greatly reduces the overall effectiveness of carbon reduction efforts.
But doing the work in quantifying Scope 3 emissions is important. These can often account for 50% or more of your total carbon emissions, so ignoring them greatly reduces the overall effectiveness of carbon reduction efforts.
2. social
Social reporting in ESG means disclosing how your company fosters people for growth and success, and how those successes ripple out to the larger community.
Consequently, companies often document:
- Gender inclusivity
- Diversity
- Employee engagement
- Data protection and privacy
- Customer satisfaction
- Community relations
- Human rights
- Labor standards
The Social element of ESG reporting has picked up increased scrutiny in the last few years with the impacts of the COVID-19 pandemic highlighting the many labor-related vulnerabilities in the global supply chain.
New ESG standards and frameworks are putting increased emphasis on Social reporting to ensure company workforces—both their own as well as workers in the supply chain—are better protected and insulated from global-scale crises and disasters going forward.
3. governance
The governance element of any ESG reporting will focus on your internal operations and decision making. It considers operational controls and procedures, how companies educate themselves on regulatory changes and what they need to do to maintain legal compliance.
In an ESG report, the governance component often includes:
- Leadership and board composition
- Executive compensation
- Auditing procedures
- Shareholder rights
- Ethics, bribery, and corruption policies
- Lobbying and political contributions
Reporting on governance often ties back to other elements of the ESG report. For example, you may be required to identify the board members or C-suite executives who have actual competence relevant to environmental considerations like water stewardship or carbon emissions reduction. This is considered an indication that your company is well positioned to take meaningful action on these issues, rather than simply treating your ESG report as an accounting exercise.
why undertake ESG reporting?
In the past, ESG reporting was voluntary in many jurisdictions, but the push for governments to commit to Net Zero pledges through the Paris Agreement means they are increasingly incorporating mandatory environmental or ESG reporting into annual compliance requirements.
Beyond these government initiatives, companies have implemented ESG reporting frameworks for a variety of reasons, including:
- To meet client ESG requirements. Since ESG reporting standards ask companies to provide information on the impacts of their supply chain, to be able to provide this information, many of those upstream companies must implement their own ESG programs.
- To manage risk. While companies always want to highlight their successes, a proactive ESG program can also help identify vulnerabilities and opportunities for improvement. Whether you’re reducing your environmental impact or protecting your workforce, ESG reporting can help future-proof your business.
- To court new investors. A complete ESG reporting program, including several years of verifiable data and progress toward achieving targets, shows potential investors you are committed to environmental responsibility, an equitable workplace, and transparent decision making from the top down.
are there ESG reporting standards?
Companies looking to implement an ESG reporting program can follow a variety of different ESG reporting frameworks or standards. This can lead to some confusion, since reporting is largely voluntary and following different standards may result in metrics being reported differently.
Before collating any data or deciding what to report, it’s important to familiarize yourself with the standards relevant to your industry and geographic region. While many standards provide resources across multiple sectors, others are designed for specific industries.
There are also many frameworks that cover one aspect of ESG, but not others. They may focus entirely on the environmental component, without having specific disclosures for Social and Governance. If your goal is to reach Net Zero carbon targets, for example, this may be all you need, but it may be insufficient if your investors are expecting a complete ESG program.
In fact, there are there are a staggering number of ESG reporting frameworks a company can report to making it difficult to know where to start. Some of the most common ESG frameworks are:
- Global Reporting Initiative(GRI)
- Formerly Carbon Disclosure Project(CDP)
- Task Force on Climate-related Financial Disclosures(TCFD)
- Sustainability Accounting Standards Board(SASB)
- International Sustainability Standards Board(ISSB)
Our article, 9 Key ESG Reporting Frameworks in 2024, can help you navigate these and other popular reporting standards in use today, but ESG standards are also constantly evolving.
Working through the acronyms to identify the standards relevant to your industry and country, as well as any relevant reporting deadlines, is the first step in an effective ESG reporting program.
how to report on ESG metrics?
How to compile your ESG report will vary from company to company and standard to standard.
As we’ve covered above, there are many aspects of your operations that need to be investigated and documented. Ultimately, the final format is up to you, but it will need to meet the requirements of the standard selected. Some will be submitted through a portal, such as that hosted by the CDP, while others are included in annual financial reports or posted publicly on corporate websites.
In order to create an accurate report, you will need to collect information from a variety of sources. You may need to compile utility information, environmental reports, as well as documentation on staff representation, and decision making.
This is not a simple undertaking, but to further complicate matters, you may also need to pull data from multiple locations, from subsidiaries and portfolio companies, and even from up and down your supply chain. Information will come from operations, purchasing, finance, HR, IT and senior leadership.
Along with written details on your workforce and governance, ESG reports need to include quantified data for metrics like carbon emissions, water discharges, and waste generation.
Depending on the ESG standard you select, these can be calculated using direct measurements, estimated based on operational and financial information, or using verified methodologies like industry- or process-specific emission factors.
Due to the wide ranging nature of this task, there is often no natural fit for a single department or individual to spearhead ESG reporting efforts. This can be challenging as the information is often sensitive and should not be passed through multiple hands. As reports are updated annually, organizations need the data kept in a central location that can survive employee promotions and turnover.
where can i find example ESG reports?
A quick Google search will usually reveal several examples. Because some reports are made publicly available, you can easily find examples for companies in your jurisdiction or from similar industries without much trouble, however, looking at sample ESG reports has some limitations.
Although it can show you different ways that companies have laid out the information in their report, it may not reveal the work that went into preparing the report, either collecting data, making calculations, or writing the report itself.
how is ESG reporting evolving?
Along with new and updated ESG frameworks, global attitudes and priorities around ESG continue to shift. Here are a few things to keep an eye on:
Balancing ESG With Economics. While there is growing pressure for companies to develop an ESG strategy, there will also be pushback during economic instability. Any cuts and investments that are required can be hard to embrace when supply chains are unstable, yet action around ESG is needed. Companies need to find ways to streamline their reporting and implementation efforts to maximize their investment and ensure continued success.
Energy Uncertainty. The energy crisis caused by Russia’s invasion of Ukraine created uncertainty. Proposed changes to cleaner-burning fossil fuels and renewable energy sources have sometimes been put on hold, yet those power producers supplying power from non-fossil fuel options like renewable, nuclear, and lignite are already showing growing revenues. This is a rapidly shifting landscape, but as European regulators, power producers, and consumers struggle to balance supply and demand, progress on meeting climate goals has sometimes been left in limbo.
“Green-Hushing”. Despite the threats to island nations such as Tuvalu and the announcement of a global fund for loss and damage, the pressure for environmental action is often met with a trend of “green-hushing” where companies will not publicize their climate targets, or don’t report on their progress in achieving them. Transparency is critical to any ESG program and organizations need to report clearly to meet their commitments.
simplify your ESG reporting
ESG reporting requires a lot of information from all levels of your organization as well as from third parties. Many companies will outsource this work, but it can still be time consuming and expensive to manage consultants who will rely on your staff to pull the necessary data points for them.
The AMCS Sustainability Platform aims to resolve this dilemma. Our fully integrated SaaS platform bridges existing data systems, corporate ESG strategies, and internationally recognized sustainability standards. It integrates data and helps streamline all aspects of ESG reporting including:
- Climate Accounting
- Philanthropy
- Diversity, Equity & Inclusion
- Supplier Transparency
- Water Stewardship
The result is a dynamic reporting tool with results that can be shared with employees or the with public. As a cloud-based solution, it requires no on-site hardware, and can be customized to your operations. AMCS easily populates reports with the information you need, and saves employees time, since once the integrations are in place, reporting can be updated automatically.
Your ESG reporting requirements can feel complex, but they don’t have to be. Our platform is designed to work for reporting companies across multiple sectors, including financial services, healthcare, automotive and transport, manufacturing, technology, services, and government.
If you’re just getting started building your ESG program, or if your company has been at it for a number of years but is looking for a simpler way to manage your data, contact us today to see how AMCS can make ESG reporting easier.