Environmental, social & governance (ESG) reporting has continued on a growth trajectory in recent years, and has made in-roads into corporate tax & accounting departments
A comprehensive analysis of corporate ESG reporting published in February surveyed 1,350 companies across 21 jurisdictions and found that 95% of large companies reported on ESG during the 2021 disclosure period, an increase from 92% in 2020 and 91% in 2019. Moreover, a study published in June found that 99% of S&P 500 companies are reporting on ESG-related information.
This percentage naturally varies across jurisdictions. For example, companies in Western countries, including France, the United States, the United Kingdom, Canada, and Spain, all report at near-universal rates of reporting. Many countries in the Asia-Pacific region also have near-universal reporting rates among large companies, led by Singapore, India, and Indonesia. Comparatively, emerging markets like South Africa, Brazil, Turkey, Mexico, and Argentina are at various stages in their ESG-reporting journeys.
One of the main challenges to increased adoption of ESG reporting is a lack of uniformity when it comes to determining what information a company will report and the process to ensure the validity of reported information. In an effort to address this challenge, a large majority of the companies surveyed in both the above-referenced studies report using at least one standard or framework — the Global Reporting Initiative, Task Force on Climate-related Financial Disclosures, and Sustainability Accounting Standards Board were the most referenced — to prepare and present sustainability information.
Main steps for reporting on ESG matters
Before a company can publish and distribute any information related to its ESG activities, it is important that they establish a strong foundation for ESG reporting. These five steps can help build a rigorous ESG reporting program:
1. Build a reporting team with the right mix of expertise and resources
Pulling together such a reporting team will help ensure buy-in from senior-level leadership and avoid assigning ESG reporting entirely to the marketing or communications team. It’s also important to bring in outside expertise if necessary.
2. Evaluate common practices among peer companies
Review peer companies’ Securities and Exchange Commission filings and leverage the agency’s comment and review process. ESG reporting should never be done in a vacuum. Given the lack of universal ESG reporting standards, it is valuable to understand what type of reporting is expected from companies within a specific sector and market.
Companies can benefit from reviewing the ESG reporting practices of their peers, as this effort can help reveal strengths and weaknesses when it comes to ESG reporting as well as highlight the resources that may be necessary to report in a meaningful way.
3. Build a reporting roadmap and ensure all data is backed up by evidence
When tackling ESG reporting, it can be helpful to build a roadmap and determine areas of focus. Some useful questions that can help direct reporting efforts include:
- What common practices were identified when evaluating peers?
- What is the purpose of the disclosure, and who is the audience?
- What does the company want to report on given the evidence it has to support its claims?
- How can reported information be utilized across the company to address requests for information, or communicate the company’s position on a new or lasting trend?
4. Review your work and secure third-party validation
Review and approve ESG reporting internally (for example, identify a team or team member with an unbiased view of the company’s ESG reporting to ask questions and identify potential weaknesses.) Also, consider having legal and compliance staff approve the reporting.
As a best practice, have the ESG reporting validated by a third-party expert. Obtaining verification or assurance of reported information is a growing practice, even if not yet required in your jurisdiction.
5. Share ESG reporting details with stakeholders and staff
Submit reporting to relevant regulatory agencies or a national or regional standard-setter. Many regulators and standard setters require reporting to be submitted on a specific date. It is a good practice to allow ample time for review ahead of any deadline that a company faces.
Confirm any ESG reporting is accessible across different channels, such as websites, social media, and internal employee communications. Also, train senior leadership on key highlights from ESG reporting to help ensure consistent messaging.
The future of ESG reporting
ESG reporting will likely continue to play a critical role in enhancing corporate transparency. As the regulatory landscape takes shape around this issue, companies should be prepared to meet a higher bar for their ESG reporting. The companies that take steps now to upgrade their ESG reporting will be best positioned to succeed over the long run.