ESG reporting is the new buzzword for business
In the past, communications about company performance have been financial reporting, but expectations are changing. As a result, Environmental, Social, and Governance (ESG) reporting is rising to the forefront. ESG reporting is an essential management tool that helps companies identify and mitigate risks, address operational inefficiencies, attract and retain talent, and strengthen brands with consistent and reliable sustainability information.
Environmental, social, and governance topics and reporting on such issues are considered significant risks in 2022-23. ESG refers to parameters used to gauge how sustainability objectives guide business performance. Sustainability includes Organizational Governance, Social Sustainability, and Environmental Sustainability. Companies should anticipate emerging ESG requirements by understanding processes and controls and adopting sustainability frameworks.
Environmental criteria look at how a company performs as a steward of the environment. These include waste and pollution, land use, water use, greenhouse gas emissions, etc. Social criteria examine how a company manages relationships with its stakeholders. Social profile factors are workforce and diversity, safety management, customer engagement, and communities. Governance deals with a company's leadership, audits, internal controls, and shareholder rights. Governance factors broadly consist of the Code of conduct, values, transparency and reporting, cyber risk and systems, and organization structure and oversight
ESG reporting is not yet mandated, but adoption is imminent. The stakes are too high, with the pressure exerted by regulators, investors, customers, third-party affiliates, and society. The benefits of getting it right outweigh the cost, with increased opportunities for business. The ESG risk examines the ability of organizations to reliably measure, evaluate, and accurately report on their ESG impacts.
The relevant ESG disclosures depend on industry and business, life cycle, current situation, cultural appetite for change, and exposure. Every organization should be prepared for ESG implementation that would come up sooner than the expected timeline.
There are defined steps in the process of ESG implementation
Conducting a Readiness Assessment is the first step. To maintain alignment with long-term business strategy, decide whether to implement an ESG program. The organization should understand: (a) The goal of an ESG approach in the first year and the fifth year, (b) ESG risks and opportunities that need to be managed and disclosed, (c) the resources to build to be fully prepared, and (d) ESG program structure whether to be dedicated exclusively or with other areas.
Establishing a Governance Structure would be step two. Decide clearly rights, accountabilities, and oversight. Form a management-level ESG committee and a process of board oversight for risk mitigation and ESG disclosure.
The third step is to conduct and assess data collection and Governance practices. The quality and detail of the data collected from the onset are vital to informed decision-making. Develop a data framework to capture, collate, and track relevant data, whether or not the company will disclose that information. Establish a baseline, ascertain progress, and provide the ESG committee and board with relevant reporting data points and trends. Implement the proper protocols to ensure data is reportable, repeatable, and auditable.
The fourth step is to decide what to disclose. Once the company has developed a system for collecting and validating ESG data, they need to identify which data points, events, goals, or accomplishments to disclose.
The final step is determining Communication Channels. Identify the most critical communication channels for reaching target audiences. Create a dedicated ESG report microsite or leverage the website and social media to strengthen the company's sustainability story.
ESG is the standard for a company's operations that socially conscious stakeholders use to screen it. It is true that "People like to know that the companies they interact with and buy from are companies that do good in the world." ― Hendrith Vanlon Smith Jr, CEO of Mayflower-Plymouth