What is ESG reporting? And why is it important?
While profitability has always been a primary concern for businesses, priorities are shifting.
Today, an ever-greater spotlight is being shone on environmental, social and governance (ESG) – and ESG reporting – as businesses recognise that their long-term success hinges not just on financial performance, but sustainability, transparency and ethics.
Why is sustainability important in business? We are witnessing a radical shift in consumer expectations – and consumers tend to vote with their feet.
More conscious purchasers are opting to support brands that align with their ideals, while turning away from those that don’t. Further, research shows that higher levels of customer trust in relation to corporate sustainability and transparency leads to greater sales.
The same applies to attracting talent. According to Deloitte, 75% of Gen Zs and Millennials seriously consider an organisation’s community engagement and societal impacts before taking on potential employment.
For those reasons, many corporations are now baking ESG into the very centre of their long-term strategies. Clearly, companies are now judged on their impact on people and the environment. Therefore, ESG cannot be ignored.
What is ESG reporting?
ESG, or Environmental, Social, and Governance, has increasingly replaced Corporate Social Responsibility (CSR) as the standard for measuring a company’s sustainability and ethical performance.
This performance is typically measured and captured in an ESG report. So, what is ESG reporting? In simple terms, an ESG report is a comprehensive document that details efforts, activities and impact across those three core categories.
There has been a notable rise in ESG reporting activity since the 2010s. For organisations, ESG reports are a way to make their sustainability initiatives known, enabling them to easily disclose their social and environmental initiatives transparently and accountably.
Although each pillar of ESG will mean different things to different companies depending on their operations and industry, here is a outline of what ESG reports generally cover:
- Environmental: This refers to the impact a company has on the environment. FTSE Russell’s ESG model includes metrics such as biodiversity, climate change, pollution and resources, and water security. In the climate change category, companies often report on their carbon emissions – this aspect of ESG reporting is becoming critical as governments around the world, including the UK, make this reporting criteria a legal requirement.
- Social: This refers to how a company manages human relationships and their impact on people and groups. All companies share a responsibility towards benefitting all their stakeholders, not just shareholders. Employee wellbeing, human rights, community impact, health and safety, diversity, equality and inclusion (DE&I), and customer responsibility are just some of the aspects which make up the social pillar of ESG.
- Governance: This refers to how an organisation is run. This strand of ESG reporting typically covers anti-corruption, corporate governance, risk management and tax transparency, as outlined by FTSE Russell’s ESG model.
What is an ESG rating?
ESG performance can be converted into a score, known as an ESG rating.
Rating agencies ascertain these scores by collecting data on each sub-component of a company’s ESG activities from public databases, sustainability reports, media, regulatory records and financial statements. At the same time, agencies compare the material issues of individual companies against industry-specific issues to get an overall picture of ESG performance.
Some of the top ESG rating agencies include MSCI, Sustainalytics and ISS.
Companies with higher ESG ratings are more likely to gain a competitive advantage, attract investors and command influence among industry peers in terms of sustainability benchmarking.
Investors are becoming more and more influenced by ESG reporting and ratings. Businesses which do not meet ESG standards, such as the Corporate Sustainability Reporting Directive (CSDR), are considered by many as riskier investments. Those companies that perform poorly in relation to ESG are at greater risk of customer boycotts, reputational damages, and a decline in key business relationships which may destabilise supply chains.
Studies show that, generally, companies who actively participate in ESG initiatives maintain a competitive edge, are more profitable and innovative, and enhance their long-term value.
ESG frameworks
ESG reporting relies on frameworks to be effective (and consistent). ESG frameworks play a key role in standardisation – they act as guidance for businesses measuring and disclosing information. This ensures that ESG performance between organisations is more comparable.
However, the frameworks used for standardising ESG reports and ratings vary. For example, the Global Reporting Initiative (GRI) and the Sustainable Accounting Standards Board exist as two different ESG frameworks – they both outline topics covered within ESG, the types of metrics used to measure each topic area, and materiality.
Currently, no single, unified group of metrics and indicators exist under one framework. This is partly because there are multiple frameworks that are constantly shifting to improve. However, there are some widely accepted principles in regard to what a sustainability or ESG report should do. Generally, they should:
- Provide a balanced evaluation, showing positive and negative impacts of business operations.
- Outline relevant, verifiable information and evidence relating to the issues analysed.
- Detail stakeholder engagement processes and outcomes, showing how feedback from employees, customers, communities and investors shapes ESG strategy and reporting.
- Highlight forward-looking commitments, ideally with specific targets and timelines for improvements.
‘ESG standards’ go into more detail about the specific metrics and indicators, methodologies and reporting formats required:
- Metrics and indicators: may include measurements relating to waste generation and management, levels of diversity and inclusion, and how much executives make in comparison to their employees.
- Methodologies: defining the methodologies used for calculating performance provides accuracy and comparability.
- Reporting formats: how the report looks and is organised should also be regimented so that companies in the same sector can compare their data easily.
Making use of a sustainability copywriter
Organisations can choose to deal with ESG reporting in-house. However, employees that have other priorities may not have the time or confidence to translate their extensive knowledge into compelling narratives or build well-structured reports.
For this reason, hiring professional sustainability copywriters could be a good investment.
Sustainability copywriters are skilled at removing technical language barriers, capable of creating content that is accessible for a wide range of audiences while sustaining a consistent tone and messaging.
They are experienced in writing reports that draw in stakeholders, ensuring readers can quickly and easily decipher key information and highlights. Additionally, hiring external writers also saves organisations important time and resources, enabling them to meet demanding deadlines with greater ease.
From quality and readability to speed and stakeholder engagement, there are many merits of working with dedicated sustainability copywriters during the ESG reporting process. At WD Editorial, we’re able to provide you with this quality and efficiency.
WD Editorial supports you from planning to delivery, helping you to turn data into compelling content. We tailor reports to your goals, ensuring they showcase your commitment to sustainability.
Ready to elevate your sustainability reporting practices? Contact us to discuss how we can support your next sustainability report and help showcase your environmental and social impact effectively.
