Understanding ESG Reporting and Why It Matters These days, one of the biggest trends for companies throughout the world is the strategic implementation of initiatives surrounding Environmental, Social, and Governance (ESG), for investors, shareholders, stakeholders of privately-owned businesses, and increasingly, for consumers as well. ESG is an elevated topic of corporate sustainability that attracts investors. In case you are not fully aware of what ESG is, let’s review the definition and descriptions of its three core components:
Environmental As the effects of climate change continue, companies are demonstrating a consciousness about their ecological footprint as much as the average consumer. There are five areas where a company’s environmental performance typically affects its ESG score or ESG rating:
Biohazard and environmental risk
Waste management and toxicity
Whether or not your company deals directly with the environment, ESG holds the promise that all business entities, however big or small, can do their part to prioritize sustainable business practices.
Social The “social” component of ESG seeks to determine how much a company either promotes or impedes human interest within and beyond the organization. Three key areas include:
Human rights – Depending on the type of company in question, their effect on human rights may be global or highly localized. Human rights may pertain to how a given firm affects its neighboring communities, how employees are treated, or how resources are extracted further down the supply chain.
Parity, diversity, and inclusion – The public has an ever-increasing expectation for companies to back up their commitments to social equity with substantive action. Removing all barriers to inclusion is advantageous, giving a corporation a large pool of candidates for hire and a higher probability of recruiting a first-rate workforce.
Consumer rights – Consumers are more conscious than ever before of their status as a special interest group. One of the aftereffects of the 2008 financial crisis shifted social responsibility from consumers to companies and mobilized both the private and public sectors to standardize a system of protections that safeguard consumers from predatory business practices; as a result, corporations were expected to exhibit sincerity and concern for the public’s interests. Now, the public has an ever-increasing expectation for companies to back up their commitments to social equity with substantive action. Removing all barriers to inclusion is advantageous, giving a corporation a large pool of candidates for hire and a higher probability of recruiting a first-rate workforce.
Every organization should be composed of the people who keep these gears turning, which means the leadership of each company bears the weight of social responsibility.
(Corporate) Governance The corporate governance metric of EGS refers to all aspects related to the leadership culture of a given company, including (but not limited to):
Accountability and transparency with stakeholders, investors, shareholders and consumers
Conflicts of interest
Earnings (including bonuses) of executives
The equitable compensation of employees
An extension of benefits and security to employees
Management structure, checks and balances, and division of power
In evaluating corporate governance, ESG ranking agencies rely heavily on accounting transparency and fair (or unfair) financial practices… with good reason: For publicly traded companies, for example, investors are less inclined to entrust companies that lavish top-tier executives with bonuses while simultaneously stiffing their employees; not only is it imprudent, but it’s an unsustainable business model unlikely to grow and achieve returns in the long term.
There are other reasons for different types of organizations, including non-profits, to adapt to ESG accountability. Transparent reporting, in short, can make the difference between why a company is chosen, regardless of the audience considering engagement.
What is ESG Reporting? While ESG is concerned with the environmental, social, and governance initiatives, an ESG report is the disclosure of the data surrounding them. A non-financial disclosure of these three concerns measures sustainability performance and allows investors to evaluate if a company poses a financial risk or not.
The Importance of ESG Reporting: Why ESG Matters to Investors So, why is ESG important? ESG performance is important to investors for ethical reasons, as well as practical ones:
Higher returns – Companies leading in ESG consistently outperform their competitors. A Bloomberg Intelligence report once predicted that ESG assets will balloon to $140.5 trillion by 2025, while 62% of Fortune 500 companies were applying ESG metrics to their corporate governance strategy. With mounting profits and the rapid standardization of ESG practices, investors can rest assured their investments will yield competitively.
Lower risk – Transparency is a major feature of ESG, and it’s vital for shareholders to stay apprised of a company’s integrity, financially and morally. ESG plays a major role in risk management and predicting how well a company will do down the line.
Yes, ESG plays a big role in reshaping the economy for an uncertain future, but thanks to overwhelming study results, there’s no uncertainty around the material value of backing best-practicing businesses.
Why ESG Matters to Companies For a long time, the ethos common to most businesses across and between industries was to maximize profits now and worry about future losses later.
ESG, on the other hand, is geared toward the future — environmental stewardship, human welfare, and sustainable corporate practices — and there are ways that emphasizing ESG efforts can concretely benefit companies themselves, such as:
Long-term stakeholders – Businesses that choose to make sustainability a centerpiece of their company’s strategy, goals, and definition of success will appeal to shareholders who want to make a long-term business commitment with promising future yields. They’re also more likely to attract other businesses that are willing to play a guiding role in helping a firm fortify its values and grow into the future.
Employee fidelity – For the rising workforce of millennials, Gen Z, and Zoomers, it’s customary to view their employers’ values as an extension of their own. A commitment to ethics is simply non-negotiable for modern businesses; not only does it affect the talent you’ll have to draw from, but it can be a major factor in motivating employees and improving their overall productivity.
Lastly, social media accounts, such as LinkedIn, Twitter, and Facebook, have made it easier than ever to share ESG information and sustainability performance. How Is ESG Rated, and by What Agencies? It is not advisable for companies to audit their own activity and determine their own ESG scores (although some do), and the majority of trustworthy ESG ratings reports are conducted by third-party agencies. The following providers are among the reputable players in this space to consider, including (but not limited to):
Bloomberg ESG Data Service
Corporate Knights Global 100
Dow Jones Sustainability Index
Institutional Shareholder Services
MSCI ESG Research
Sustainalytics Company ESG Report
Thomson Reuters ESG Research Data
There are variations between the methodologies used by ESG ranking agencies, which makes it a challenge to certify they’re getting involved with best-practicing businesses. The private sector has registered the meteoric value of ESG and moved towards standardizing rankings, with the World Economic Forum’s International Business Council proposing a five-fold system of measurement for ESG.
Building Your Company’s ESG Reporting There are tried-and-true best practices in the planning and deployment of ESG reporting that may help you make the most of your reporting goals:
Choose an in-house team that will be responsible for putting together a reporting framework for ESG-related issues, as well as identifying current and future targets and initiatives, developing performance metrics, and creating internal and external reporting standards.
Assess and gauge the importance of your company’s sustainability issues and efforts for various audiences
Do your research on, and select, an expert your team can work with for ESG solutions, and make sure you will be able to obtain real-time data that will help identify your ESG needs and provide the resources and insights that will help you and your chosen experts to meet your combined reporting expectations.
Design an effective communications strategy for all your company’s external and internal audiences.
Communicate your ESG performance to all audiences, to highlight how and why it aligns with your overall business strategy.
An ESG strategy for any company is important beyond financial reporting. From explaining and combating the great resignation reasons provided by many to making way for sustainable investing, an ESG disclosure serves many reasons.
ESG efforts by a business appeal to many, from investors to employees and consumers. But while efforts are important, accurate and trustworthy ESG data reporting by a reputable third-party agency is essential.
And When You Have Completed These Tasks… Let the world know about what you’ve done – and keep them updated – via press release distributions on ACCESSWIRE’s incredibly user-friendly platform! You will not have to take a chance on the ACCESSWIRE difference sight-unseen, though…we will be happy to schedule a demonstration with you – simply click here to get the ball rolling!