In recent years, a record number of companies have started to disclose their ESG performance based on their relevant standards, local laws (such as the upcoming SEC rules for the U.S.), and chosen frameworks. In fact, 90% of S&P 500 companies had published a sustainability report as of 2020, compared to 75% in 2015.
With increasingly stricter regulations around sustainability reporting, or climate disclosure, and corporations of all sizes being required to provide transparency into their environmental, social, and governance (ESG) data, it begs the question: What defines sustainability reporting, and why is it important?
A sustainability report capitalizes on your company’s tracked and measured ESG data to share key initiatives and results with both stakeholders and the general public. Sustainability reports are often shared internally to track progress on your company’s footprint and get greater visibility into your business operations and their impact on the environment. These reports, which utilize ESG data, act as a powerful source of information to guide your company’s strategic decisions and empower your market positioning in regards to sustainability best practices.
At its core, reporting corporate social responsibility (CSR), sustainability or ESG progress is about analyzing and sharing information regarding a company’s extra financial performance. Going beyond revenues, profits and costs, sustainability reporting is about monitoring all dimensions of a company’s impact. To name but a few examples;
Engaging in sustainability reporting allows [companies] to precisely quantify E,S and G performance and to leverage this data to improve. With this insightful data, companies can fully focus on areas that will significantly increase positive impact.
While corporate social responsibility (CSR) impacts internal processes and company culture and remains fairly high level, ESG is a measurable set of propositions that external partners and investors look at in their evaluation of a company. ESG illustrates a company's identification and quantification of its risks and opportunities, as well as highlights the ethics of a company.
In short, ESG data is much more granular than CSR information and can be used on multiple levels; as much for tracking your company’s carbon footprint and results from sustainability initiatives, to assessing risks in supply chain and human resources such as identifying key reasons for high turnover or inequalities in your corporate culture).
CSR remains highly qualitative while ESG provides a much more cohesive and in-depth approach to measuring your corporation’s overall health, stability and impact on people and our environment.
As corporate citizens, companies must understand and monitor their sustainability performance. Engaging in sustainability reporting allows them to precisely quantify E,S and G performance and to leverage this data to improve.
However, sustainability challenges and strategic goals differ from one industry to another, and even from company to company within the same sector. That is why companies must first define their ESG considerations, by choosing their own material ESG Key Performance Indicators.
As a simple example, a company offering professional services will probably not face the same sustainability challenges as a manufacturing business. The services company might make diversity hiring or reducing their energy usage to be more environmentally responsible as one or two of their performance measures, while the latter could focus on minimizing GHG emissions during production.
Data collection and monitoring sustainability performance regularly is key to identifying opportunities to improve in the long term. With this insightful ESG data, companies can fully focus on areas that will significantly increase their positive impact by the time they release their next annual report.
By publicly sharing their ESG performance, a company demonstrates its commitment to transparency and corporate social responsibility. With access to ESG KPIs, stakeholders can make informed decisions (investing, buying products, applying for a job, etc) and can therefore encourage companies to pursue their sustainability efforts.
It is also important to be aware that with sustainability topics becoming increasingly important to secure capital, talent and sales, some organizations are tempted to “advertise” their CSR initiatives with misleading or even false claims. This is referred to as “greenwashing”.
To help make sustainability reporting reliable (and “true”), numerous standardized frameworks have been developed. These frameworks define what KPIs should be monitored and how to measure them. The KPIs they request usually adapt to relevance for different industries. To name but a few;
Frameworks ensure that a sustainability report is reliable and in harmony with disclosure best practices, making the latter even more valuable to stakeholders. In fact, they make company and industry comparisons possible by creating a common structure to quantify sustainability performance. In the last few years, reporting standardization has helped propel sustainability from a “nice-to-have” business initiative to a core component of corporate strategy, as well as a new way to assess a company’s performance.
As the leader in ESG reporting software in the United States, Canada and Europe for over a decade now, our team has created a helpful guide on planning your ESG reporting strategy that you can read here.
If your company is interested in sustainability reporting software, we’ve also created a checklist of the 6 factors to consider when choosing an ESG reporting tool here.