ESG Reporting – What makes for a compelling report?
Every company should address the environmental and social impact of its operations and have a reporting approach that stakeholders can trust.
This is important because it is essential for brand reputation. More importantly, it is also the right thing to do, to help protect our planet and to look after people.
The significant growth in ESG reporting over the past ten years has been hugely valuable. It has allowed companies to explain their ESG impacts in the context of their wider contributions to society.
ESG reporting was originally introduced as voluntary soft law but has slowly been replaced by increasingly stringent and binding regulatory frameworks. The EU Non-Financial Disclosure Directive is a good example of this trend.
The corporate approach to ESG reporting has evolved from mere compliance towards using sustainability as a competitive advantage by pro-actively addressing ESG issues. And then effectively communicating about it to the diverse groups of stakeholders. All this leads to the key question: if an organization must report its ESG activities and if it wants to use ESG reporting as a tool to strengthen the corporate reputation, what should be in my ESG report? What makes for a good report? What is best practice in ESG reporting?
Choose a recognised reporting standard
There is a clear move towards convergence around a set of preferred reporting standards. The main ones include those developed by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), and those from the Taskforce for Climate-Related Financial Disclosures (TCFD).
Regulators, investors and civil society organizations increasingly demand the use of these standards as the structure for ESG responses. And adopting a recognized reporting standard will ensure a common language between an organization and its stakeholders.
Identify what is material
The main reporting frameworks require a thorough materiality analysis as a necessary first stage of the reporting process. Stakeholders are interested in understanding how organizations identify and assess ESG risks and opportunities, and the financial significance of these to the business.
We work with clients to understand the issues that are material to both internal business operations as well as to the concerns of the organization’s external stakeholders. This analysis forms the basis upon which to build an effective ESG report: it allows an organisation to focus its communications on those issues that are truly relevant, and, equally important, ignore those issues that are not.
Be authentic and be honest
An essential guiding principle is to be honest about the progress of your ESG achievements. It’s easy to fall into the trap of thinking you can only report things if you can provide sophisticated answers to all ESG concerns, even if you are only just starting out on your reporting journey.
But stakeholders want to see that an organization has truthfully tried to identify the issues that are financially materially and want to know the process of how the organisation is dealing with them. They want an honest assessment and an authentic attempt to find solutions. They do not want perfect answers or an organization that looks like it is simply ticking the boxes. Apart from anything else, there is a very good chance you will be found out if you are not totally honest, which has the potential to cause reputational damage.
Tell a story
Finally, don’t forget that the ESG report needs to tell the story of your unique company. Don’t let the need to address ESG regulation or reporting standards allow the report to become standardized and generic.
Include examples with storytelling potential. They can be around a unique corporate approach to an issue, a sector-specific solution, or a story around specific a project or even an inspirational individual within the organization.
1. Understand the new ESG agenda
2. Analyze the potential implications for the organization
3. Articulate a clear position on how the organization’ operations fit with the new ESG agenda
4. Develop clear and science-based targets for ESG reporting
5. Know the reporting standards and ensure that reporting is aligned with the latest requirements
6. Map the key influencers and stakeholders
7. Develop a targeted ESG outreach campaign around the report
8. Do not forget to engage in an active employee engagement program
9. Ensure you are entirely honest about your progress and your targets
10. Tell stories to create your unique ESG narrative
Peter de Graaf
Senior Advisor, ESG and Sustainability, based in London
Peter heads up the sustainability reporting work for Leidar and works across the offices in Geneva, Brussels and London. He has been involved in sustainability throughout a career that includes regulatory affairs, management consultancy and finance.