ESG Reporting, What's All The Hype?
We know consumers make purchasing decisions based on a brand's social responsibility. Pata-gucci is a prime example.
What if it became common practice for retailers to require a product's carbon footprint before agreeing to sell it in their store?
What if municipalities needed you to have a plan to increase local biodiversity before allowing a warehouse expansion or authorizing new commercial zones.
What if lenders offered preferential or tiered interest rates to carbon neutral businesses?
What if investors required a realistic and actionable plan to net zero carbon before considering to invest?
Environmental, social and corporate governance (ESG) Reporting is a communication tool to disclose these non-financial metrics to your business's stakeholders.
By stating these non-financial metrics you are marketing how your business is adding value to society. This long-term vision often indicates a well run, forward thinking company that will remain competitive in the transition to a carbon neutral economy.
What is ESG Reporting?
ESG Reporting is a way to communicate how your business is adding value to society through environmental, social and good governance factors. The following are some examples:
Environmental Factors |
|
Social Factors |
|
Governance Factors |
|
How do I ESG Report?
Take a snapshot of where you currently are. Look at the impact of your business across all of its operating, investing and financing activities. This can be anything from your carbon footprint, to supply chain factors, partnerships, joint ventures, pay equity, waste, etc. Luckily, defining the problem is half the solution. Once you have an accurate picture of your business's impact on society, you can begin to strategize change.
Choose which ESG factors to prioritize and set SMART goals. Unfortunately, we cannot fix all the world's problems at once, so it would be better to focus on fewer goals that you can effectively work towards than to do a shotgun approach. To help figure out which ESG factors to focus your time and energy on, look at which issues present the greatest risks and opportunities to generate long-term value in your business. Also, look to your vision and mission statements for guidance as they should provide good strategic direction.
Measure progress towards your ESG goals. These can be quantitative factors that can be measured like your carbon footprint, pay equity or tonnes of waste. Or they could be qualitative factors such as only sourcing products from suppliers that have met a specific sustainable certification (Fair Trade as an example), moving to a LEED certified building, or improving your internal financial reporting controls.
Prepare the report. This stage is just compiling all the information from the above stages into one report to communicate to your stakeholders.
This typically is done on an annual basis with your financial reporting. Interim reports would also work. There are a number of financial reporting boards coming out with specific standards to keep the information uniform and reliable. For most small and medium businesses compiling a clear and transparent ESG Report would be sufficient for today's uses.
Threats to ESG Reporting
ESG Reporting is only as impactful as the quality of the information itself. If the disclosures are all future plans, or exaggerated and unsubstantiated claims on your business's positive impact on society, then the usefulness of the report diminishes.
Greenwashing is nothing new to environmentalist, nor is specific to ESG Reporting, but is a threat nonetheless. Be honest about your goals and achievements, the readers of your ESG Report will smell any bullshit a mile away.
While you are going through the four steps mentioned above, make sure you remain objective to the reporting. It is good practice to ask yourself the following questions:
Am I greenwashing?
What data or other supporting information can I provide to prove my claim?
How would a third party be able to verify this?
How does this add value to society?
Engaging an accounting or consulting firm to assist compile an ESG Report is also an option. This is an effective way to ensure quality with an objective outside voice.
Examples
Most of the below examples are large public companies, so take their ESG Reports with a grain of salt. Most small to medium sized businesses will not produce a 100 page report. The information in the report is the most important part.
These examples are just to show what information they have included to help guide you to preparing yours.
As you are going through their reports see if you can spot the greenwashing...