ESG reporting is becoming an essential aspect of stakeholder engagement for most businesses or companies. Unfortunately, essential frameworks, criteria and requirements for handling this reporting are a mystery to many businesses in the market. As a result, they are having difficulty communicating the environmental, social and corporate governance strategies to show that their specific goals are met.
So, if you are a business owner or tasked to handle the company’s reporting, you need to enhance your understanding of ESG and look for the most effective way to report this. You can do extensive research on how it’s done for the best results and familiarise yourself with some essential information about reporting.
What Is ESG?
ESG is an acronym that stands for Environmental, Social and Governance. It is a framework used by businesses, companies and organisations to communicate the procedure they use to manage the risks and the opportunities they have that are related to the framework of environmental, social and governance criteria. It is usually used by socially conscious investors as a way of screening potential investments but has become more critical for the general public. Typically, this involves the following criteria:
The environmental criteria refer to the environmental impacts and the risk management practices employed by an organisation. This includes the overall resiliency of the firm against the existing physical climate risks and how they take care of the natural resources and their greenhouse gas emissions.
The social criteria refer to the relationship of the organisation with its stakeholders. This does not only include metrics like diversity, equity and inclusion, employee engagement and fair wages but also the impact of the organisation’s operation on its supply chain partners and in the community where it operates.
The governance criteria refer to the organisation’s manner of leadership and governance. Analysts use the criteria to understand the following:
- How the organisation’s leadership incentives are aligned with its stakeholders.
- How the stakeholder’s rights are viewed.
- The existing internal controls used for the promotion of leadership accountability and transparency.
Given the essential roles that these three main criteria play in the current market climate, it is crucial for a business, organisation or company to create comprehensive and up-to-date reports to effectively communicate to stakeholders, attract financing and investors effectively and generate competitive advantage.
What Is an ESG Report? How Does It Differ From a Sustainability Report?
An ESG report, as its name suggests, is a disclosure of an organisation’s environmental, social and governance data. The report is often created to shed light and communicate the organisation’s applicable policies to several stakeholders. This is also used to boost investor transparency and inspire other firms to do the same.
Furthermore, the report summarises the qualitative and quantitative benefits of the organisation’s ESG activities. It is viewed as an essential tool for investors to screen investments. Also, this allows them to align their investments to meet their values and avoid companies involved in the following undesirable activities.
- Environmental damage
- Social missteps
ESG and Sustainability: What Are the Similarities?
ESG and sustainability are usually used interchangeably because they share some similarities. The most common of these are the following.
- ESG and sustainability are both designed to ensure the welfare of an organisation, business or company.
- Both are essential in ensuring that the existence of an organisation is not cut short but managed well to last for a more extended period.
- ESG and sustainability reports should be accomplished by professionals and with the help of legal experts.
- ESG and sustainability efforts should be up-to-date and consider the latest business industry trend.
ESG and Sustainability: What Are the Differences?
Despite the abundance of similarities between ESG and sustainability, they are technically different. If you are in charge of creating your company’s ESG report, it is best to know their differences, especially the following.
- Sustainability is mainly associated with the relationship of the company to the environment. It is, however, an umbrella term that generally relates to a company’s relationship with the world around it and its sustenance over the long term. On the other hand, ESG focuses the general idea of sustainability through the lens of the three criteria outlined above.
- ESG is a framework designed to inform and attract potential investors, communicate specific goals and engage stakeholders beyond financial outcomes. This framework is ideal for use for companies looking to expand their sources of financing, engage new markets and demonstrate competitive advantages.
Common Best Practices in Making an ESG Report
1. Create a devoted ESG reporting team
Many companies prefer to hire specialised consultants to assist them in handling the overwhelming task of the entire reporting process. Although this technique provides a long list of benefits, creating an in-house and devoted ESG reporting team is strongly advised to effectively incorporate ESG into the company’s DNA.
2. Know the metrics that should be disclosed
Although creating an ESG report involves the inclusion of various metrics, it is best not to always disclose all the metrics included in the assessment if they are not material or relevant to your company. In this sense, an expert or a firm providing ESG-related services is important because they have extensive knowledge of the specific metrics to disclose to achieve the company’s goals and engage with the relevant stakeholders in an efficient way. An expert will also help you keep the other metrics confidential until the need for their disclosure arrives.
3. Invest in a software tool that effectively collects ESG data
Data collection and processing are the greatest needs to have a realistic and comprehensive ESG report. As such, it is very helpful if you or your company to engage with third-party providers that will assist data collection, consolidation and assessment. Undertaking this step will make the task of ESG disclosure easier and also create a report that is accurate and transparent.
How Madison Marcus Can Help You
Despite the significant work involved in creating an ESG report, many company owners consider this an excellent tool for assessing if their company’s purpose and strategies are aligned with their stakeholders and helps generate specific goals to achieve. With the growing exposure of ESG, a detailed ESG report is an effective method for those seeking financing or wanting to attract more investors.
If you need a legal expert or a reputable law firm that specialises in ESG reporting, Madison Marcus can help ensure that you can come up with the reporting output you need. Our experienced team has collectively worked with various publicly listed entities both within Australia and internationally. Our areas of expertise include business and human rights, green and sustainable finance, climate change-related litigation, reporting and disclosures, impact investment, corporate governance and ESG-related funds and asset management.
For all enquiries, contact us here.