What is ESG Reporting and Why is It Important?

Sustainability and social responsibility are no longer just buzzwords in business. Today, it has become integral for companies to make environmental, social and governance (ESG) reporting part of their core DNA to show that they are sustainable and responsibly-run.

What is ESG reporting?

ESG stands for Environmental, Social and Governance, which are the three criteria that help guide companies to run themselves responsibly, and what investors look at to make financial decisions about whether they are worth investing in.

Here are the factors considered for each metric in ESG reporting:

Environmental factors relate to how a company impacts the natural environment, including its:

• carbon footprint
• energy management
• greenhouse gas emissions
• pollution mitigation
• and waste management.

Social factors look at how a company manages its relationship with its workforce, suppliers and customers, as well as with the community as a whole. This includes:

• community relations
• data privacy
• health and safety
• employee diversity and inclusion
• and labour relations.

Governance factors focus on the transparency and accuracy of a company’s internal procedures, which includes:

• audits
• business controls
• ethics and procedures
• shareholder rights and responsibilities
• and tax strategy.

Why ESG reporting is important

With the increasing demand for greater transparency and accountability from companies from investors, customers, employees and non-governmental organisations (NGOs), ESG reporting is not only important, but essential for business.

For investors

Recently, more investors are taking an active interest in how their investments impact social and environmental issues. ESG reporting gives investors a fuller understanding of the companies they’re interested in financing, along with their long-term performance and value creation prospects.

According to a survey conducted by the CFA Institute, 73% of investment managers worldwide incorporate ESG criteria into their investment decisions, and the demand for ESG investing is soaring. In 2021, an estimated $120 billion flowed into sustainable investments, more than double the $51 billion of 2020.

Risk management

Currently, there is no unified global standard in ESG reporting, but frameworks do exist across different industries. With the need for greater consistency, the International Sustainability Standards Board (ISSB) was formed at COP26 to work towards creating a single set of global sustainability reporting standards.

Although most ESG reporting is currently voluntary, 90% of companies in the S&P 500 have been publishing sustainability reports annually as of July 2020. By owning the ESG reporting process and collecting data now, companies are able to manage risk from things like future mandatory reporting and regulations, as well as accusations of greenwashing or lack of transparency.

Long-term stability and growth

ESG is also linked to value creation in companies, from attracting more customers with sustainable products, to cost reductions from lowered energy, water or carbon consumption, to boosting employee morale and social credibility. ESG reporting, therefore, provides a benchmark for companies to assess their progress against industry peers and ensure that they stay competitive in the marketplace.

There is no doubt that ESG reporting is critical to the success of an organisation, and it is very likely to become mandatory in the near future. Mandatory or not, ESG reporting allows companies to be accountable and transparent to their stakeholders about the opportunities and risks they face, and how they plan to manage and mitigate these risks.

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Allinfra is building technology solutions to help your organisation achieve ESG goals. Learn more about our sustainability data management software, Allinfra Climate.