Getting started with ESG reporting: four things to get right
Some companies speak the language of ESG fluently; others are new to the concept of ESG. Those new to ESG will likely face the challenge of ESG reporting for the first time. Those companies will first have to understand and implement basic concepts like choosing the ESG reporting framework that is the best fit, applying a materiality assessment and engaging with their stakeholders, navigating the topic of scope emissions and finally, setting ESG-related goals and defining KPIs.
To avoid redundancy, we cover the fundamentals here and provide links to our blog post, where we provide in-depth insights into particular topics.
ESG reporting frameworks
The list of ESG reporting frameworks seems to be endless. However, the good news is that consolidation is taking place, and the often cited “alphabet soup” of ESG standards or frameworks is becoming more condensed.
There are three aspects to consider when choosing an ESG framework:
- Regulatory dimension: Identify if any regulatory aspects predetermine the reporting frameworks that can be used. One example is Europe, where companies that fall under the CSRD will have to report using the ESRS framework.
- Stakeholder expectations and industry-specific standards: Another viewpoint are stakeholder expectations and industry-specific standards. The GRESB framework is one example of a reporting framework tailored to the real estate industry. So, looking at this particular framework may solve one part of the equation if you are in the real estate domain. Another way to look at this topic is by understanding your stakeholders’ demands. Meeting stakeholder expectations by delivering the information they expect in a format they are familiar with streamlines data processing on the stakeholder side. Here is an overview of reporting frameworks.
- Matching with your company’s priorities: Besides regulatory and market-driven demands, your company’s priorities should be reflected too. If carbon accounting and net zero are your top priorities, a reporting framework like SBTi could be an option. If you are looking for a holistic approach that covers all letters of ESG, then the GRI reporting framework could be a good pick.
Using a well-established ESG framework will not only help align with stakeholders’ demands (e.g. improving the usability of sustainability reports) but can double as a checklist to ensure that data is complete since possible data gaps can be easily identified.
Taking this one step further is using dedicated ESG software to support the reporting efforts. As a result, not only becomes data collection (see below) much more manageable and structured. There is also an excellent chance to report to various ESG frameworks simultaneously and, by doing so, meet the needs of different stakeholders based on one common dataset. However, this may require capturing all the data points for the individual frameworks. Read more about the interoperability of ESG reporting frameworks here.
Determine what is material to your company and industry
The key takeaway here is that a materiality assessment will help you to identify those ESG factors that are material to your company. Further, doing so guides what topics to focus on in ESG reporting and helps to identify priorities for your ESG strategy.
There are several approaches for conducting a materiality assessment. Single materiality, double materiality, or nested materiality are just a few examples – read our blog post on “materiality madness” for more details.
However, we consider “double materiality” as the gold standard since it combines the outside-in and inside-out perspectives simultaneously. It is important to involve stakeholders in the process to ensure that their views are reflected. Read more about double materiality and how to conduct a materiality assessment here and here.
The disclosure of greenhouse gas emissions is often required because stakeholders demand it or the reporting frameworks require disclosure on Scope 1, 2 and 3 emissions. However, while Scope 1 and 2 emissions can be determined quickly, accounting for Scope 3 is challenging. Using an integrated software solution that supports carbon accounting besides data collection for ESG reporting can be helpful. Read more about the accounting of Scope 3 emissions here and here.
Goals and KPIs
Another critical aspect of the underlying ESG strategy process is to define goals and KPIs. As mentioned here, collecting ESG-related data provides an overview of the status quo. Based on that, goals and KPIs will determine what subsequent actions are required and inform projects and initiatives designed to achieve these goals.
What to avoid
After the “do’s”, here come the “don’ts”. This section briefly discusses typical mistakes and pitfalls that should be avoided in ESG reporting.
Underestimating the effort of data capturing
Collecting all the essential information for structured ESG reporting is time-consuming and resource-intensive. What initially seems like a task that can be accomplished in a matter of days may end up taking several months. The reason is that while the data is available, it may require further processing to align with the reporting framework’s specifications. Unfortunately, in some cases, the data may not be obtainable.
Overestimating availability and data quality
As mentioned above, while some data is readily available and may only require additional processing, other data, such as Scope 3 emissions, may not be obtainable since there was no process to collect the related data.
That applies not only to the example of Scope 3 emissions but also to other data points. To ensure usable and high-quality data, extra effort and effective communication with both internal and external stakeholders across the value chain may be necessary. Nonetheless, with time, the quality of the data collected is likely to improve to a level that can be used for ESG reporting purposes.
Focusing on data only
Experience has shown that a purely qualitative approach to disclosure is inadequate and does not meet the demands of users of sustainability reports. The shift from the NFRD to the CSRD is a testament to this. ESG reporting involves more than just providing numbers and facts; it’s about presenting and explaining data in its relevant context. That includes an overview of recent developments, an outlook on future trends, and an explanation of how priorities (results of the materiality assessment) have been established. Thus, ESG reporting goes beyond mere data collection and includes analysing the information and its significance.
Missing on leveraging the insights from ESG reporting
Having complete oversight of all ESG-related data leads to leveraging insights from it. So, what are the risks, opportunities, and the “low-hanging fruits” to start with? Then, finally, how will these insights inform the business strategy?
ESG strategy and business strategy
We are convinced that business and ESG strategies must align to deliver the best results for a company. Therefore misalignments have to be avoided.
Greenwashing fires back and can harm the reputation of a company significantly. So even with exciting results achieved, those results need context and transparency so users of sustainability reports can evaluate the progress independently.
Besides the “do’s” and “don’ts”, here are some additional aspects to consider ranging from ESG software to SOPs and engaging with stakeholders along the value chain.
Dedicated ESG software to streamline ESG reporting
Consider implementing a dedicated ESG reporting software. Using such a tool can reduce the amount of “spreadsheet confusion” and enables reporting under various frameworks. Besides, most software solutions come with add-ons for carbon accounting or mandatory checks for the supply chain. Finally, a scalable software solution makes capturing data across departments, locations, sites, and even countries notably easier.
SOPs and process documentation
Some ESG-related data will be obtained only once a year. Therefore, setting up SOPs that support “short-term memory” is helpful and will be a crucial part of future data capture efforts. “Limited assurance” may be a mandatory requirement in some jurisdictions. Therefore, thorough documentation of the entire process may be needed. A good approach is to discuss the requirements with your company’s assurance company and clarify the documentation procedures required.
Plan for engaging with stakeholders along the value chain about your ESG journey, carbon emissions and social standards.
ESG affects various stakeholders and even those along the value chain. So informing those about what you plan for your company’s ESG journey and how they can participate is essential. Typical topics to discuss include ESG strategy, risks, opportunities, carbon accounting, decarbonisation and social aspects along the value chain.
ESG reporting, especially when done for the first time or when transitioning to a different reporting framework is required, is challenging. We have outlined the steps that are needed in this blog post. You can learn more about our consulting services by following this link or booking a free and non-binding discovery call with one of our ESG experts below.