April is Earth Month and to mark the occasion Vena is looking at ESG--environmental, social and governance. Throughout the month, we'll be exploring how to integrate ESG principles into your organization.
Seventy-five percent of organizations find environmental, social and governance (ESG) criteria "somewhat important," "important" or "very important" to their business strategy.
That's what we found out when we surveyed business leaders and finance and operations professionals for our 2022 industry benchmark report, The State of Strategic Finance. Being a good corporate citizen, respondents told us, is a critical part of doing business.
But getting ESG right takes more than just good intentions. Today, keeping on top of your ESG efforts means reorganizing parts of the business, setting goals and measuring performance. It also means steadily tracking those goals and performance metrics to identify and overcome any challenges that get in the way. All of this matters for staying accountable to stakeholders inside and outside of the organization, to let them know how you're meeting your objectives.
That's where ESG reporting comes in. And crucially so, because according to Ernst & Young, 99% of investors today use ESG reporting in their decision-making process.
In a world where good corporate citizenship is key to your customers, investors and employees—and, therefore, to your overall business health—ESG reporting is becoming more and more important. So what do you need to know to get your ESG reporting off the ground?
Let's take a look.
ESG reporting is used to disclose your company's ongoing efforts around its environmental, social and governance actions. While it's sometimes referred to as sustainability reporting, it's meant to extend beyond sustainability to look at areas around social and corporate responsibility as well. For instance, reports could include activities around:
The goal of ESG reporting is to be transparent about the opportunities, challenges and risks that exist within your company around those areas, while communicating how your organization is performing in terms of its corporate responsibilities. It's meant to answer questions investors might have regarding your company's actions and show them that you're sincere in your objectives—not "greenwashing" to make it sound like you're doing more than you are.
An increasing emphasis on ESG and corporate citizenship has made ESG reporting more common--and more important.
So now that we've established what ESG reporting is, what exactly should it look like?
Well, that depends. There are different frameworks your ESG and sustainability reporting can follow—for instance, the Global Reporting Initiative (GRI), the Principles for Responsible Investment (PRI) and the Sustainability Accounting Standards Board (SASB) have all developed reporting standards. They're designed to create consistency and an easy way to compare across organizations.
No matter whether you choose to follow one of these established frameworks, or opt for your own, ESG reporting should offer up qualitative and quantitative information centered around your activities in the three relevant areas: environmental, social and governance. That includes performance indicators as well as long-term goals and rationale for your programs and investments.
The end goal, after all, is accountability, and letting investors and other stakeholders know exactly what you're doing in terms of ESG.
According to the report by Ernst & Young, investors use that information to help them understand "the impact of sustainability on business's performance, risks and long-term growth prospects." That, in turn, can influence their investment decisions. But the report also found that 80% of investors believe "too many companies fail to properly articulate the rationale for long-term investments in sustainability, which can make it difficult for us to evaluate the investment."
To ensure stakeholders have all the information they need, you should make sure your ESG reporting includes detailed quantitative and qualitative data that addresses the following questions:
What are you trying to accomplish? How will you introduce new initiatives, communicate them and avoid any obstacles in the way? Do you have a budget and schedule in place?
What are your existing goals and how are you performing? How are you measuring up against your ESG key performance indicators (KPIs)? Where can you make improvements or changes?
Are there areas where you can bring in new ESG initiatives, improve performance against your existing ESG metrics or innovate with new offerings with ESG potential?
What's happening in the world, your industry or the current market that could threaten your organization's ESG efforts? How can you get ahead of those risks?
By addressing the questions above, you'll create a picture for your investors and other stakeholders of what your organization is doing in terms of ESG, the obstacles you face and how you're performing despite them. But let's dive a little deeper into some of the other elements that may go into your ESG reporting:
ESG-focused KPIs play a critical role in your ESG reporting, helping you measure your ongoing performance along a range of fronts. Choose your ESG KPIs based on the areas you've deemed most critical to your ESG efforts. Some examples include:
Examples of ESG-Focused KPIs
Energy consumption Greenhouse gas emissions Social:Percentage of employees who volunteer Metrics around health and safety practices Governance:Diversity within leadership positions Executive compensation |
ESG Score
Your ESG reporting may also include an unbiased ESG score by a third-party agency. An ESG score rates your business on its overall ESG efforts and how well you're keeping up with your ESG commitments. It's assigned by groups such as Bloomberg ESG Data Services, the Dow Jones Sustainability Index Family or RepRisk, each with their own set of criteria.
These scores can be used by any company to add further transparency within their ESG reporting and give investors, customers and other stakeholders additional information around their activities.
So why should you care about ESG reporting—and why should your organization make it part of your overall reporting practices? Let's look at some of the reasons:
By publishing your ESG reporting, you're building transparency around your ESG efforts—and demonstrating to the world the values of your organization. After all, while anyone can talk the talk, ESG reporting shows you're walking the walk as well. It offers a deeper look at your ESG-related commitments and how you're performing against them—showing stakeholders you're not afraid to put your time and money where your mouth is. This goes a long way to building a brand that stands for good corporate citizenship.
Investors are interested in anything that contributes to your overall performance and brand perception—so of course they're interested in ESG as well. It's not surprising, then, that Ernst & Young found that 99% of investors will use an organization's ESG reporting in their decision-making process. That makes it a potentially vital part of your investor relations.
ESG has become a competitive differentiator for many customers today as well. They want to make ethical buying decisions, choosing companies that support an environmental mandate, have diverse workforces and are free of corruption. In fact, when PwC surveyed consumers, employees and executives for their 2021 Consumer Intelligence Series survey, 76% of consumers said they'd discontinue relationships with "companies that treat the environment, employees, or the community in which they operate poorly." A full 83% also thought companies should be actively shaping ESG best practices. Your ESG reporting can help provide proof that you are.
Putting the Pieces in Place
As with so many things in your organization, getting ESG reporting right starts with people, process and technology. Putting the right pieces in place will help elevate your ESG efforts and ensure you stay accountable and transparent.
The best ESG teams are cross-functional, drawing from departments across your organization--including finance, human resources, legal and operations. Assign roles and responsibilities based on your reporting needs, stakeholder demands and regulatory requirements, with an ESG leader to guide the entire process. Your team will also champion your ESG efforts throughout the organization, getting leadership buy-in and bringing every department together.
Having the right team in place is just the start, though. To keep everything running smoothly and on time, your dedicated ESG committee should establish a process for reporting on your ESG efforts, setting goals, accessing the right data and keeping performance on track. As that process develops, you'll be able to continue building on your ESG efforts and improve performance towards your ESG goals.
An Excel-based ESG reporting template can help you draw on the ESG data you need and keep on top of it, invest back into the environment and track your performance and KPIs. This will make your ESG reporting easier and more intuitive, ensuring your stakeholders are getting all the information they need and empowering you to continue making ESG a regular part of your ongoing reporting efforts and organizational pursuits.
What's more, you can take your ESG reporting to the next level by bringing those reports into corporate performance management software.
Today, ESG is becoming a differentiator for businesses that want to set themselves apart through good corporate citizenship, solid environmental policies, ethical governance and strong diversity and social advocacy in the workplace.
But it's not enough to just say you're a good corporate citizen. Transparency and accountability are key to proving it—and showing the world you care. That's where ESG reporting comes in—giving all your stakeholders the information they need to demonstrate your commitment.
Download your free ESG reporting template from Vena today.
