What is ESG reporting and how do you set it up?
We are living in a climate emergency, and understanding environmental and social risks has become increasingly important for companies and for investment decisions.
Environmental, social and governance (ESG) indicators, also known as extra-financial indicators, are becoming key to investor decision-making. According to an Edie report published in July 2022, nearly 74% of the world's largest investors are focusing more on ESG investments since the Paris Agreement (2016).
Until now, the emergence of CSR departments within companies has been driven mainly by the desire to remain attractive to talent and customers. Now, however, pressure from investors is also helping to encourage companies of all sizes to introduce ESG reporting as a means of achieving greater sustainability.
While setting up an ESG reporting system may seem long and tedious, it is possible to develop an ESG reporting strategy with peace of mind and efficiency by using the right tools and relying on best practices.
In this article, we present :
- What is ESG reporting?
- 5 reasons for ESG reporting
- How do you set it up?
- How do you choose an ESG reporting framework?
- How can Beavr help you produce your ESG report?
What is ESG reporting?
ESG is an abbreviation (Environment, Social and Governance) that is commonly used to designate all the extra-financial impacts of companies.
ESG criteria are used to assess a company's sustainable practices. ESG measures a company's environmental impact, social responsibilities and governance standards, to ensure long-term sustainability and ethical commitment to its stakeholders.
For example, this may correspond to reducing greenhouse gas emissions or controlling health and safety risks for employees.
ESG reporting is the disclosure of information designed to transparently demonstrate a company's performance in these three key areas: environmental sustainability, social sustainability and corporate governance.
To promote the transition of capital and investments towards more sustainable models, the European regulator has considerably tightened the rules applicable to financial players, notably through the CSRD. Companies are obliged to communicate transparently on the impacts of their investments.
To meet these obligations, investors rely on ESG reporting data. It is used to make investment decisions and analyze the impact of companies in their portfolios, prompting a growing number of companies to implement ESG reporting.
5 good reasons for ESG reporting
1 - ESG reporting enhances a company's attractiveness and competitiveness in terms of sustainability
Stakeholder expectations of extra-financial performance are exploding from all sides: employees, customers, business partners, investors. They all expect companies to better monitor and manage their sustainable impacts. Implementing ESG reporting enables a company to meet all these expectations, and thus enhance its attractiveness and brand image.
Conversely, companies that fail to do so are likely to suffer the consequences:
- Loss of customers and markets
- Unattractive to new talent
- Loss of confidence on the part of investors, who prefer to invest in companies that measure their risks.
ESG reporting is therefore an important confidence-building measure for stakeholders.
2 - ESG reporting helps identify and anticipate corporate risks
The risks associated with extreme climatic events on the increase, or modern slavery in supply chains, are among the greatest risks facing companies. Companies that implement ESG reporting can anticipate, identify, mitigate and address risks before they become a problem, by implementing environmental and social strategies based on ESG reporting data.
3 - ESG reporting reduces operating costs
ESG reporting enables companies to collect reliable ESG data in order to make more effective and strategic budget allocation decisions. This often leads to reductions in operational expenses such as energy, water or waste costs.
4 - ESG reporting limits the risk of unintentional greenwashing
Companies that do not set up ESG reporting systems are not transparent with the information and data they communicate. Or those that focus on the wrong indicators (or indicators of little relevance to their sector of activity), and consequently communicate erroneous data, have a higher risk of being accused of greenwashing. Tracking the right ESG indicators can help companies prevent this risk.
Implementing ESG reporting within your company cultivates a culture of transparency around data, and builds trust with your investors, employees and customers. As you begin your ESG reporting, remember that transparency and continuous performance improvement are more important than perfection.
5 - ESG reporting helps anticipate regulatory sustainability requirements
A number of standards govern the publication of ESG reports to ensure the transparency of companies' sustainable practices. These include the Global Reporting Initiative (GRI), which provides guidelines for reporting on environmental, social and governance impacts, and ISO 26000, which focuses on corporate social responsibility and sustainability. The Sustainability Accounting Standards Board (SASB) also defines industry standards for ESG reporting. Finally, the European CSRD directive imposes strict sustainability requirements on large companies in Europe.
How do you set up ESG reporting?
1 - Set up a dedicated ESG team
Many companies feel overwhelmed by the numerous ESG reporting frameworks, indicators, standards, legal and regulatory requirements in the ESG landscape.
A short-sighted response may be to call in a sustainability consultancy to tackle these thorny issues. However, while experienced help has many advantages and proves to be strategic in certain situations, relying solely on external advice prevents your organization from truly integrating ESG into its DNA. Calling in a consulting firm can be very useful for a dedicated mission (calculating a carbon impact, setting up a diversity policy with a specialist, helping you define your sustainable development strategy, etc.), but it's important that the conductor of your ESG strategy is internal.
Indeed, ESG objectives must be correlated with those of the company: integrating ESG into the decisions of the management body or bodies will make the company's sustainable strategy more relevant and the company more resilient; conversely, a siloed strategy will have less impact and be less effective.
Although the road can be long and full of obstacles, especially in the early stages, it's essential to set up a team (consisting of one or more people, depending on the size of your company). We recommend recruiting ESG experts or finding existing in-house talent.
2 - Align yourself with the appropriate ESG benchmarks
Once you've set up your dedicated ESG team, the next step is to define your reporting framework, i.e. the set of indicators you'll be tracking, the way they'll be measured, and the calculation and consolidation methods. Using a reference framework will guide your entire sustainable reporting process, telling you not only what to measure and why, but also how to communicate your results.
3 - Invest in a reporting platform to collect, analyze and exploit ESG data
Data is the lifeblood of any sustainable strategy. Similarly, the quality and reliability of this data, since it is this data that will guide the company's strategy, represents one of the greatest ESG reporting challenges for companies. This is particularly true for large companies and investment funds, which have to collect information from numerous subsidiaries, partners and suppliers.
As a result, more and more companies are beginning to see the benefits of investing in an ESG reporting platform for the collection and analysis of their extra-financial data. An ESG reporting platform helps companies :
- Collect information from numerous stakeholders (automatic data collection, real-time monitoring, automatic reminders).
- To have verified, reliable and auditable information (to limit human errors and miscalculations), and thus limit bad strategic decisions or unintentional greenwashing.
- Manage non-financial performance with clearer data and a better understanding of impacts and risks (visualization of company performance and progress, integrated dashboard, tracking of actions and results achieved).
- Save time on all low-value-added tasks and focus on impact.
How do you choose an ESG reporting framework?
To choose the right benchmark for your ESG report, consider the expectations of your stakeholders. Look at the expectations of your investors and customers. In general, investors will appreciate internationally recognized standards such as the GRI (Global Reporting Initiative) or SASB (Sustainability Accounting Standards Board), while customers will prefer labels.
At the same time, it is important to refer to the obligations and regulations specific to the country in which your company is located.
In this section, we'll take a moment to introduce you to some ESG reporting requirements and frameworks.
Some ESG reporting standards
GRI (Global Reporting Initiative)
It is one of the most widely used benchmarks in the world. It offers a comprehensive approach, covering a wide range of environmental, social and governance indicators. It is suitable for companies wishing to provide a holistic view of their sustainability impact and risk.
SASB (Sustainability Accounting Standards Board)
This benchmark is geared towards investors, focusing on the material issues specific to each business sector. It is often chosen by listed companies or those in contact with financial investors.
TCFD (Task Force on Climate-related Financial Disclosures)
Focused on climate risks, this framework is often preferred by companies seeking to demonstrate how they are managing the financial risks associated with climate change.
CDP (Carbon Disclosure Project)
The CDP assesses companies on their performance in terms of climate change, deforestation, water management, plastic waste and biodiversity.
ISO 26000 standards
The ISO 26000 standard for social responsibility can be used as a guide rather than a reporting framework, helping to structure the approach.
European taxonomy
The European taxonomy is a regulatory framework that classifies economic activities according to their environmental sustainability, in order to guide investment towards green projects. For example, the construction of a building is considered "green" if it meets certain energy efficiency standards, such as a maximum energy consumption threshold per m².
SDGs (Sustainable Development Goals)
This is a set of 17 goals set by the UN to promote global sustainable development by 2030. It's unlikely that your CSR strategy will address all 17 SDGs, but you can select several depending on your sector and priorities.
Regulatory standards: the CSRD and the DPEF
Make sure the repository you choose meets regulatory requirements in the regions where you operate. For example:
- CSRD (Corporate Sustainability Reporting Directive) in Europe imposes strict criteria for ESG reporting by organizations from 2024.
- DPEF (Déclaration de Performance Extra-Financière) in France imposes specific ESG reporting obligations.
This list is not exhaustive, as there are also sustainable benchmarks that focus on a specific impact or sector (e.g. Fair Wear Foundation). It's up to you to decide which one best suits your company's ESG reporting needs.
How to implement your ESG reporting strategy? Beavr can help
Set up your ESG reporting strategy with Beavr to easily collect, analyze and exploit your company's ESG performance.
- Structure and automate low-value-added tasks such as data collection.
- Reuse the data collected for all your needs: certification, communication, ESG reporting.
- Track your progress and make the right decisions to improve your impact and limit your risks.
Conclusion
ESG reporting is becoming essential for companies seeking to comply with growing sustainability and governance requirements.
Through in-depth analysis of the sustainable data collected, organizations can produce transparent reports aligned with benchmarks such as the CSRD, thereby strengthening their credibility.
Well-structured reporting enables us not only to demonstrate a concrete commitment to sustainable development, but also to anticipate risks and better manage information on their impact in order to meet stakeholder expectations.
By adopting the right practices and standards, companies can produce reliable reports and make more effective strategic decisions.
Finally, ESG reporting becomes a powerful management tool, geared towards long-term performance and greater resilience in the face of environmental, social and economic challenges.