Beyond the regulatory requirements of each jurisdiction, today more and more
companies voluntarily prepare and submit ESG information.
What are ESG reports?
ESG reports are reports of non-financial information that include both qualitative discussions of topics (climate, pollution, human capital, diversity and inclusion, business relationships, corporate governance, etc.) and quantitative metrics used to measure a company’s performance against ESG related risks, opportunities and strategies.
ESG reporting allows companies to:
• Communicate the key ESG risks and opportunities as well as the strategy to manage them.
• Communicate your resilience to changes in the environment and society.
• Credibly demonstrate how they execute their purpose of creating value for all stakeholders.
ESG reporting produces credible data to drive a company’s value. The data collected can also provide insights into process improvements, including potential efficiencies or cost savings.
Companies should follow best practices when developing and improving their ESG disclosures
What are the best practices in the preparation of ESG reports?
Companies should follow best practices when developing and improving their ESG disclosures:
• Management should be involved and, where possible, set incentives associated with meeting ESG goals.
• Sustainability information must be of high quality. Reports should focus on material topics, such as those outlined in the company’s strategy.
• Consider the intended audience of the reports and adapt the tone and content of the reports accordingly.
• ESG reporting must be carefully aligned with ESG standards and guidance.
• As a way of granting greater transparency and credibility to the data presented in the report, it is recommended to obtain some kind of assurance or verification by an independent professional.
What are the communication channels for ESG information?
Companies can communicate ESG information to investors and other stakeholders through multiple and diverse channels, such as social networks, the website, periodic results communications, the annual report, or the sustainability report.
It is very important to ensure that there is an alignment of messages between the different communication channels. The message does not have to be duplicated, but it cannot be contradictory.
How to measure sustainability?
There are many organizations that aim to boost ESG reporting by setting standards and guidelines. Some of these organizations are highlighted below.
• Global Reporting Initiative (GRI): the first and most widely adopted global standards for sustainability reporting, aimed at a broad group of stakeholders and designed to report on the impact of organizations on the economy, the environment
environment and society.
• Sustainability Accounting Standards Board (SASB): sustainability standards with an industry focus, which help companies disclose material and relevant information for investor decision-making.
• Task Force on Climate–related Financial Disclosures (TCFD): guidelines promoting more effective climate-related disclosures, focused on the investor audience and the financial impacts of a company’s climate-related risks and opportunities.
• International Sustainability Standards Board (ISSB): created in November 2021 by the International Financial Reporting Standards Foundation, with the aim of issuing standards that will prioritize ESG risks, especially those related to climate and that affect the value of the company, so they are important to investors.
The launch of this organization is the most significant and promising milestone in moving towards consistent and comparable ESG reporting standards.
What are companies currently doing?
Based on the most recent publicly available ESG data for S&P 500² companies as of June 2021:
• All companies had some ESG information available. 95% of companies had detailed ESG information publicly available. Of the remaining 5%, most companies posted high-level policy information on their website.
• Most companies had this information outside of a filing with the regulator, usually in a separate ESG report.
• Some companies fully adopted the framework or standard (SASB, GRI, TCFD, etc.), some partially adopted it, and others used that framework or standard as a reference when determining what information to include in their ESG reports.
• 53% of companies received some kind of assurance or verification from an independent third party about some of their ESG information.
How to prepare for the preparation of ESG reports?
The steps companies should take to prepare for ESG reporting include the following:
1. Don’t wait for ESG reporting to become mandatory
2,500 large companies that own stocks listed on the NYSE or NASDAQ.
As regulatory activity on sustainability reporting advances in different jurisdictions, companies have a great opportunity to:
• embed ESG risk management into broader enterprise risk management processes
• determine which key performance indicators are most relevant and important to stakeholders and the sustainability reporting standard or framework to be used for reporting, and
• Evaluate the types of data sources and determine if there are policies in place to ensure that data is reasonable and accurate, arrives in a timely and reliable manner, and is derived in a way that produces consistent and comparable results.
2. Include ESG and the sustainability report in the Management agenda
The company’s management must:
• understand the risks and opportunities related to ESG,
• understand how these issues affect the value of the company and decision making
of the interested parties, and
• know the regulatory initiatives.
3. Integrate the finance function
Reports must be reliable, credible and relevant to stakeholders and
establish a clear link between financial and non-financial information. The financial function
can:
• play a key role in engaging with, understanding and connecting the requirements of the
stakeholders, in particular investors and translate them into metrics and disclosures
relevant and material
• help establish effective governance and obtain independent assurance on the
processes, controls and data outputs, vital to build trust and transparency with
The interested parts.
4. Obtain some kind of assurance from an independent professional
• To build trust with stakeholders and meet obligations
• Also, to ensure they have robust processes and controls in place to generate data credibly and transparently, companies could consider conducting a readiness assessment for the type of disclosures in an ESG report.
¹ ESG stands for Environmental, Social and Corporate Governance.
² 500 large companies that own shares listed on stock exchanges NYSE or NASDAQ.
.
