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Of late, ESG has gained immense importance, with investors and stakeholders looking to evaluate an organisation’s impact on the world. With more organisations pushing for transparency in sustainable and socially responsible practices, using ESG reporting tools to devise detailed reports can give valuable insights and help in creating long-term value for all your stakeholders.
Whether you’re an investor, stakeholder, or simply curious to learn more about sustainable business practices, this guide will highlight the importance of ESG and the reporting practices.
What is ESG?
To understand ESG reporting, we must first understand ESG. The acronym ESG stands for Environmental, Social, and Governance. It is a concept used to assess the effectiveness of an organisation’s sustainable practices and investments. Companies can report on a variety of ESG metrics, depending on their size, sector, and relevant regulations.
Let’s take a closer look at these three areas:
Environmental
The environmental aspect refers to how your organisation’s activities impact the natural environment. It considers factors like resource usage, pollution, climate change, waste management, energy efficiency, and biodiversity impacts.
Environmental ESG metrics include:
- Carbon emissions
- Product carbon footprint
- Climate change vulnerability
- Use of natural resources
- Waste management
- Clean tech and renewables
Social
The social aspect covers how your organisation treats its own people, various stakeholders, and society as a whole. It evaluates your organisation’s labour practices, employee relations, diversity, equity and inclusion (DEI), community engagement, customer satisfaction, and human rights.
Social ESG metrics include:
- Labour management
- Health and safety
- Product safety and quality
- Privacy and data security
Governance
The governance aspect refers to how your organisation is run. It covers business ethics in terms of board composition, executive compensation, shareholder rights, and transparency. Governance makes sure your organisation is transparent and follows the industry’s best practices.
Governance ESG metrics include:
- Corporate governance
- Board diversity
- Executive pay
- Business ethics
- Tax transparency
What is ESG Reporting?
ESG reporting is the process through which companies disclose data on their environmental, social, and corporate governance. This report gives a snapshot of your organisation’s impact in these three areas.
An ESG report can answer the following questions:
- How is your organisation using energy and managing its environmental impacts?
- How is your company building people, culture and communities?
Why is ESG Reporting Important?
Transparency
Thorough ESG reporting allows your organisation to be transparent on how your operations affect growing concerns such as climate change.
Investor Demand
Investors rely on an ESG report to gauge your organisation’s value and growth potential, which helps them make informed investment decisions.
Brand Loyalty
Consumers are increasingly aware of how organisations operate and would prefer businesses that meticulously report on their ESG initiatives.
Compliance
An ESG report helps organisations make proper disclosures while meeting regulations.
Risk Management
ESG-related issues can make your business vulnerable to risks. ESG reporting can identify the potential business risks, whether it’s a negative environmental impact or supply chain inconsistencies.
Innovation
ESG reporting can push your organisation to improve ESG strategies by identifying areas of improvement.
Goal Tracking
An ESG report holds your business accountable for your ESG performance, claims, and strategy. This can be used to track the progress against your goals.
What Is the Typical Structure of an ESG Report?
ESG reports can vary in structure, but typically include the following components and sections:
1. Executive Summary: This includes a summary of your organisation’s ESG efforts.
2. Environmental Policies: This section includes the policies and initiatives your business has taken to manage pollution, emissions, and waste control in the supply chain, manufacturing and related processes.
3. Social Policies: This section covers all policies and metrics in areas including labour practices, workforce diversity, and community engagement.
4. Governance: This section demonstrates how your board of directors and executive management teams operate ethically.
5. Conclusion: The report concludes with a statement of your company’s current ESG practices and its future goals.
Is ESG Reporting Mandatory in the UK?
Whether ESG reporting is mandatory for you depends on where your organisation is based. National or jurisdiction-level ESG reporting regulations may require your company to submit reports.
Large organisations (those with an annual turnover of £36 million, a balance sheet total of £18 million, or 250 employees) are required by the UK’s current reporting requirements to report on their energy use and carbon emissions in accordance with the updated Companies Act of 2006.
However, large businesses that employ more than 500 people or generate more than £500 million in revenue annually must disclose their energy use and Scope 1 and 2 carbon emissions in accordance with the Streamlined Energy and Carbon Reporting (SECR) framework.
ESG reporting requirements for companies will be further increased by the adoption of Sustainability Disclosure Requirements (SDRs) and UK Sustainability Reporting Standards (UK SRS).
How Can My Organisation Start Reporting on ESG?
You can develop a comprehensive ESG strategy that is in line with your business’ objectives.
Identify Stakeholders and Build Your Team
Determine the internal and external stakeholders who would be interested in reading about your ESG efforts. Next, create a team of diverse, self-motivated individuals with expertise in different areas who can nurture and drive your ESG initiatives.
Research ESG Reports of Industry Leaders’
Download and review various industry leaders’ ESG reports to find out what data they’re disclosing and which frameworks they’re using. Use this research to brainstorm which metrics are important to your organisation, what data you’re already collecting, and what data you still need.
Build Your ESG Roadmap
Your team needs to further refine the metrics and values that matter to your organisation. Once this is done, create a comprehensive roadmap to set and achieve your goals for ESG reporting and ESG performance.
To Sum Up
ESG reporting is important for businesses to not only offer a complete overview of environmental, social, and governance performance, enabling stakeholders to make informed decisions, but also showcase their commitment to sustainable practices.
Your business’ commitment to ESG reporting can allow you to showcase your commitment towards sustainability and ensure a long-term, positive impact on the world.
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