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Disclosure and reporting of climate-related activities annually are becoming mandatory for businesses either directly with governmental authorities or with customers and partners seeking supply chain information. Even if not mandatory, for middle-market companies with annual revenues between $10 million and $1 billion, Environmental, Social, and Governance (ESG) reporting can differentiate them and provide a significant competitive advantage in a world where sustainability is increasingly crucial. This article outlines the basics of ESG disclosures and reporting for business leaders. It also delves into the frameworks and entities governing and guiding organizations globally and in the United States.
The significance of disclosing ESG activities is increasing each day, making it an inevitable requirement. In order to prepare for this rapidly evolving landscape, it is crucial for forward-thinking companies to establish a thorough ESG reporting system. Despite the complexities associated with ESG reporting, neglecting it can be detrimental to reputation, future prospects and potential sources of funding. By failing to report ESG activities, companies run the risk of signaling that ESG is not a priority or worse, that it is not being addressed at all. Assuming that stakeholders are aware of all of an organization's ESG activities is also a mistake. Therefore, strategic communication through a regular, well-executed report can provide stakeholders with transparency into a company's ESG program.
A successful ESG program is underpinned by strong governance, as investors and stakeholders are interested in who oversees these initiatives. ESG ownership and accountability must be clearly defined and communicated across an organization. This begins with securing executive commitment, and establishing the strategic direction, policies, and resource allocation to support ESG efforts. An ESG lead, or committee, should be appointed to coordinate activities, monitor performance, and communicate with internal and external stakeholders. Effective ESG governance involves cross-functional collaboration, clear delineation of roles and responsibilities, and setting specific targets and decision-making processes. It is essential to provide training opportunities to build an ESG team's understanding and engage regularly with stakeholders to align expectations.
A variety of ESG frameworks and standards have been established by government and regulatory bodies. During the reporting process, the board or committee responsible for ESG management should select one or more frameworks as guidance. Frameworks serve as fundamental building blocks for ESG reporting. When selecting a framework, first review current legislation and regulatory rules. If you're a publicly traded company in the U.S. or collaborating with companies in the EU, the framework may have already been selected for you. Secondly, consider what frameworks your peers and partners utilize. Finally, choose the framework that best suits your industry and organization. While researching applicable frameworks, prioritize the rankings, standards, and disclosures that are most important to your business. Note that many companies use more than one ESG reporting framework to address their unique requirements and diverse stakeholders' expectations.
ESG comprises several pillars that each contain unique issues and scope. The assessment of materiality - evaluating and prioritizing activities - is essential to ESG reporting. This evaluation determines which information is most valuable to your investors, stakeholders, and business. A materiality assessment enables stakeholders to provide input on what matters most to the company and allows businesses to identify areas with the largest potential impact.
Materiality may be viewed as outside-in or inside-out. The former refers to the external factors that affect business performance, such as how climate change can impact the supply chain or how societal attitudes towards an issue can affect product demand. The latter analyzes how a company's activities affect the world, such as how its operations impact the environment and the community. Finally, double materiality encompasses both perspectives.
ESG reporting commonly presents challenges in clear and comparable data. For businesses and investors, uniformity in disclosures year after year enhances performance and output. The process begins by selecting an appropriate framework and working with the relevant metrics and standards provided by the frameworks and standard-setting bodies. A solid execution of the ESG activity involves a continuous process of governance, assessment of materiality, and ends with thorough data collection. Ensure precision in this process by taking diligent steps.
Effective communication of ESG reporting data is essential for engaging stakeholders and showcasing your organization's sustainability journey. Your ESG report should avoid greenwashing and instead present clear data supported by detailed explanations and context. A dedicated section of your company's website can house key ESG data points, updates, case studies, and stories. Leveraging social media to share ESG achievements, stories, and data can broaden your reach. Remember to be transparent and consistent with your data, and tailor your communication to your audience. Ultimately, your ESG report should reflect the extensive attention paid to ESG matters and the message that it presents.
Navigating ESG frameworks, standards and regulations can be challenging for mid-market enterprises. Elliott Davis offers guidance to mitigate this, using industry-leading reporting software to create accurate ESG reports and disclosures. Our software has been designed to specifically cater to the unique requirements of this market segment. Reach out to our team today to learn more on how our program can help you create similar and compliant reporting data for your upcoming ESG report.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
