16 November 2022
Reporting ESG data
ESG captures the non-financial elements and opportunities that shape an organisation.
What is ESG? Why report on it?
Deloitte defines it succinctly: “ESG stands for environmental, social and governance. These are called pillars in ESG frameworks and represent the three main topic areas that companies are expected to report on. The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company's day to day activities.”
Operating a business now is more about the bottom line or balance sheet. Owners, shareholders, industry and the wider public want a more rounded, inclusive view of business performance. That rounded view includes ESG reporting which provides important data and context around non-financial elements of an organisation’s performance.
What is included in ESG reporting?
Measuring ESG data and reporting is still a fairly new concept, so unlike, say, a P&L, there isn’t a standard list of things to report on – though areas that tend to be included are:
- The environmental impact of that organisation’s activities – greenhouse emissions, pollution emissions, proportions of waste recycled, water use, provision of electric car charging stations, data on employees using public transport to get to work and scope three emissions – the supply chain, and whether those suppliers operate ethically.
- In terms of social impacts, reporting covers things such as what that business or organisation does within its local community (or more widely), how they train and develop their employees, occupational health and safety standards – with regard to employees and work practices and also products supplied, and supply chain labour. Some organisations report on their accessibility to different demographics.
- Governance elements of ESG reporting include things like executive remuneration packages and how they are linked to sustainability, board diversity, corporate behaviour and shareholders’ rights.
Who is responsible for ESG and reporting it?
The nature of what’s included in ESG reporting, its increasing importance and ‘profile’ means ultimate responsibility sits with the board or senior leadership team. Communicating ESG objectives internally generally sits (over 60%) with the C-suite of large organisations. In some it’s a communications team responsibility.
But who is, or should be, collecting, collating, interpreting, and disseminating this information? Currently in many organisations and businesses ESG reporting responsibilities have fallen to the finance department.
Mark Jenkins, Chief Financial Officer at MHR sees an increased significance in measuring ESG data: “Having the ability to identify, record and analyse trends is key before any business can set an agenda. This will allow an organisation to determine any non-financial risks that are intrinsic in their day-to-day operations and any process efficiencies may even find their way to the bottom line.”
ESG reporting can vary considerably from financial reporting. It often contains significant narrative detail and non-financial data and stats.
There is no standardisation in ESG reporting…
…yet. And it’s not mandatory, yet – though elements such as greenhouse emissions reporting has been mandatory since 2013. However, from 2023 ESG reporting through the Sustainability Disclosure Requirements (SDRs) will increase. The SDRs support businesses in managing their exposure to sustainability risks. They also provide guidance around setting targets and measures. It seems likely that reporting ESG initiatives will increase on the way to some measures becoming mandatory. Businesses not reporting, or reporting only minimally currently, are advised to start integrating ESG reporting into their standard processes.
While not mandatory, ESG is becoming an expectation for many organisations when deciding who to trade with. Different professional bodies offer support to organisations reporting or starting to report: SDR (Sustainability Disclosure Requirements), the GRI (Global Reporting Initiative) and the SASB (Sustainability Accounting Standards Board) are all UK bodies.
Which companies and organisations report, and which don’t?
There’s no firm data showing organisations over a certain size generally reporting ESG versus organisations under a certain size not reporting – though it’s generally acknowledged that larger organisations are more likely. Neither is reporting level determined by industry sector. However, reporting is increasing – recent research by Vuelio shows 31% of organisations have an ESG policy with another 41% considering it.
A commitment to ongoing sustainable practices has many tangible benefits including a positive impact on the bottom line. In turn this will add to the organisation’s business resilience and their ability to scale up when they need to.