ESG Reporting 101: What You Need To Know
In this Guide
Starting out in your ESG journey, or looking to take it to the next level? If so, you’ve come to the right place.
As environmental, social, and governance reporting becomes mandatory for an increasing number of companies around the world, having a solid ESG strategy has evolved from a “nice to have” to an essential part of any organisation’s toolkit.
Whether you’re driven by regulations, public demands or a desire to go above and beyond, here’s what you need to know.
What is ESG reporting?
ESG reporting is all about disclosing information covering an organisation's operations and risks in three areas: environmental stewardship, social responsibility, and corporate governance.
Consumers look to ESG reports to find out if they are supporting a company whose values align with theirs. Meanwhile, investors look for qualitative and quantitative information to help them screen investment opportunities according to the ESG factors below.
How are companies using energy and managing their environmental impacts? How prepared are they to face the challenges of climate change?
Examples: Carbon emissions, Climate change effects, Pollution, Waste disposal, Renewable energy, Resource depletion
How are companies fostering people and culture, and what kind of impact does that have on their own employees and the wider community?
Examples: Supply chain, Discrimination, Political contributions, Diversity, Human rights, Community relations
How are companies directed and controlled, and how are leaders held accountable?
Examples: Executive compensation, Shareholders' rights Takeover defence, Staggered boards, Independent directors, Board elections
You may have seen companies publish ESG scores from organisations such as Bloomberg, S&P Dow Jones Indices (S&P DJI), or others. Ratings measure the degree to which a company's economic value is at risk due to ESG factors and therefore whether a company is investable. Companies that are willing to more thoroughly report ESG performance than others tend to score higher. A lack of solid, transparent ESG reporting can hurt an organisation's ESG score.
The global issuance of bonds for environmental, social, and governance goals in 2021 was on pace to hit $1 trillion for the first time ever, more than double what was sold in all of 2020.
- Bloomberg 2021
The demand for ESG data.
Establishing trust in data is the top ESG concern for finance leaders across Europe, according to a Workiva survey.*
The impact of ESG requirements on reporting timelines is the second biggest challenge, with over a third (36%) naming it as their main worry.
Almost the same number of finance professionals (34%) are primarily concerned about auditing processes and requirements.
*Workiva commissioned a survey of 539 finance leaders across Europe in the Spring of 2022.
Sustainability initiatives at corporations appear to drive better financial performance due to mediating factors such as improved risk management and more innovation.
- ESG and Financial Performance, NYU Stern Center for Sustainable Business and Rockefeller Asset Management, 2021
Strong ESG strategies are linked to better outcomes.
Producing a strong ESG report is about more than just meeting local requirements. Companies that go above and beyond ‘tick-box’ compliance, while reporting in a clear and reliable way, see a number of benefits:
Solid ESG reporting strategies demonstrate good governance, transparency and future-readiness to investors, strengthening overall trust in the company.
Knowing how to communicate well with customers about ESG performance and strategy can help solidify brand reputation, avoid greenwashing claims and improve overall market perception.
A McKinsey analysis found that ESG reporting increases equity returns 63% of the time, while a Nasdaq report revealed that companies were less volatile in the 30 day period after making public ESG disclosures.
ESG performance has been linked to happier staff—and happy employees work harder, stay longer, and attract more high-quality talent. A report by Marsh & McLennan found that “ESG performance will become increasingly important to attracting and retaining talent” in coming years.
Is ESG reporting mandatory?
In the European Union and the United Kingdom, ESG reporting is mandatory for most large listed companies. Soon, considerably more EU-based organisations will need to start producing ESG reports as a result of the Corporate Sustainability Reporting Directive (CSRD). The UK is also currently tightening its reporting requirements, while in Switzerland, mandatory ESG reporting is now being introduced for the first time.
Outside of Europe, many countries are now doing the same, with mandatory requirements emerging in New Zealand, Canada and Malaysia.
While ESG reporting is not presently a legal requirement for companies in the United States, the Securities and Exchange Commission has proposed climate disclosure reporting for listed companies as of 2024.
ESG reporting across regions.
Large listed companies in the EU (listed with over 500 employees or more than €500 million in annual turnover) are required to produce an annual ESG report. Current requirements, however, are soon to be expanded.
Under the CSRD, far more organisations will need to report on ESG, following much stricter disclosure requirements: companies will, for instance, be required to disclose the extent to which their activities align with the EU Taxonomy (which determines the business activities deemed sustainable by the EU).
Meanwhile, the Sustainable Finance Disclosure Regulation (SFDR) imposes disclosure-related requirements on financial market participants and advisors in the EU.
In the United Kingdom, ESG reporting is also mandatory for large organisations—and, similar to in the EU, requirements are now expanding. Soon, companies will need to produce reports in line with the Task Force on Climate-related Financial Disclosures (TCFD).
(You can find out more about the CSRD here, read all about the EU Taxonomy here, and learn about the TCFD here).