Our Guide to ESG Reporting Requirements

ESG reporting is a popular way for investors to assess issues that reflect business value beyond financial performance. This is because ESG performance correlates with business longevity and reduced risk. Customers, employees, and investors alike are attracted to companies that have a strong ESG profile with a record of commitment to achieving sustainability goals and targets. The main place to learn about business ESG performance is within their annual ESG reports.

ESG reports provide data on environmental, social, and governance criteria that are essential to a company.

👉 This data is used by investors and other stakeholders to evaluate how businesses pursue their goals, targets, commitments, and initiatives in these key areas.

ESG reports reflect both the performance for the current reporting year as well as the change over time. They contain both quantitative data, as well as qualitative summaries of the ESG strategy a business pursues. However, the exact content of an ESG report varies business to business, as they are voluntary reports containing self-selected criteria that businesses deem material to their own operations. Most businesses report according to the recommendations of well-known ESG standards and frameworks, which aids comparability across business sectors.

ESG reports are usually published annually and shared publicly on business websites. They are a key communication tool for disclosing a broader corporate vision beyond financial performance.

👉 ESG reporting is important because over the past few decades, investors have become increasingly interested in companies that strive to meet their ESG reporting requirements – and how well companies do so can result in more financial aid. While ESG reporting began as a voluntary ethical business practice, it has evolved to a highly valued source of business information – to the extant that ESG reporting requirements are beginning to exist. As several trends are driving the rise of ESG, more and more companies are beginning to realize the importance of ESG criteria and how it can have a positive impact on their business.

However, there are more reasons why ESG reporting requirements are becoming compulsory as ESG reporting becomes popular.

First of all, climate change risks are more prominent and costly than ever. Investors often seek clarity from businesses on their ability to mitigate climate impacts and transition to a low carbon economy. ESG reporting requirements can help prevent green washing or inaccurate information from being spread around.

Also, younger generations are also choosing sustainable brands, products, and even employers. 62% Gen Z customers prefer brands that align with their environmental and social values, and seventy-six percent of millennials care about the sustainability of their employers.

Some new environmental regulations are helping to demonstrate the importance of ESG reporting requirements. The EU’s Corporate Sustainability Reporting Directive was approved in April, 2021 to help make ESG reporting requirements more common across different regions.

Usually, ESG reports work by identifying ESG factors within a company, collecting various data, disclosing information, and seeking consistent improvement – but ESG reporting requirements aim to standardize these common steps.

ESG reporting requirements are the practice which attempt to standardize and regulate ESG reporting to ensure that there i consistency and comparability in ESG reporting. Some commonly used frameworks include the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), and the United Nations Sustainable Development Goals (SDGs). These frameworks provide guidelines for reporting and disclosing ESG-related information and can help companies adhere to ESG reporting requirements.

👉 ESG reporting requirements can include investor and stock exchange requirements, influence from non-profit organizations, employees, or local communities, and even be implemented by government bodies.

ESG reporting requirements will often require companies to allocate more time and resources to ensure that all the necessary obligations are met to prevent things like greenwashing, customer disloyalty, and failure to comply with new environmental regulations.

ESG reporting requirements will require even small companies to get moving on their sustainable journeys.

This is because while many large corporations have reported their ESG data for many years, smaller companies face a steep learning curve. To help with this problem more third-party evaluators and business intelligence software has arisen to support the newcomers to ESG reporting.

Greenly offers a service for reporting carbon emissions, which is one of the most standard requirements across most ESG frameworks. When companies report their ESG information to their stakeholders, they are able to craft a narrative that reflects their values. It reinforces consumer trust in brands, thanks to their transparent presentation of ESG risks and management approaches.

Third party software companies like Greenly can help companies prepare their disclosures and reports for current ESG reporting requirements and for future ESG reporting requirements. Some of these ESG reporting requirements include the CSRD, the NFRD, and the SEC Disclosure Rule in the U.S. – all of which mandate companies to disclose ESG criteria.

ESG reporting provide necessary frameworks that can help businesses follow recommendations on the principles, measurement, methodologies, and presentation formats for publicly disclosing their ESG information – and ESG reporting requirements are the entities who make these practices mandatory.

There are a few notable ESG reporting requirements and directives that have gained attention in the past few years.

• The Corporate Sustainability Reporting Directive (CSRD) is a European reporting directive that will impact ESG reporting as it will require a large amount of companies to report on ESG topics.
• The Sustainable Financial Disclosure Regulation (SFDR) in the U.S. will require more transparency regarding sustainable investments across the United States.
• The Non-Directive Reporting Directive (NFRD) is another European reporting directive, predecessor to the CSRD, that requires many European companies to disclose various data related to ESG factors.

Here are some of the most popular ESG frameworks:

• CDP, (previously known as the Carbon Disclosure Project, formed in 2000 and currently has about 10,400 reporting companies. The main goal of this non-profit is to compile data on corporate environmental impacts for climate change, forests, and water security.
• International standards such as the ISO 26000 provides a set of standards corporations can use to structure their voluntary sustainability reporting. The standards cover seven core principles: environmental responsibility, human rights, governance, working relations, fair operations, consumer protection, and sustainable development.
• The Global Reporting Initiative (GRI) was founded in 1997 and covers environmental, social, and governance issues. GRI created the first global standards for sustainability reporting in 2016. Over 10,000 companies report under GRI.

In collaboration with GRI, the International Financial Reporting Standards (IFRS) foundation announced its goal to develop a new global sustainability reporting standard to increase consistency and comparability for ESG reporting around the world.

👉 Ultimately, all of these reporting directives, frameworks, and ESG reporting requirements can help companies to become more well-rounded, sustainable, and work towards greater success.

ESG data is unique because it is collected to demonstrate ethical values. In order to collect the data, the company must first adopt an ESG strategy which presents its values and goals. Therefore, ESG reporting requirements are is most successful and adhered to when there is good communication between both the existing impact and intentions of a business.

Here are the core steps to make sure your company is adhering to the necessary ESG reporting requirements:

1. Develop an ESG strategy

A sustainability strategy helps businesses ground their ESG reporting with an approach that aligns with their overall business goals. When developing a strategy, near- and long-term goals for sustainability. Engage the different teams and company divisions to support the ESG strategy.

2. Collect Data

Many details required to measure and track ESG are available from the internal receipts, documents, memorandums, and reports of a company. When gathering the data, it may help to streamline the process by hiring a service like Greenly which specializes in carbon management for your GHG emissions data.

3. Seek the Guidance of an ESG framework

Choosing a framework is easy when your investors request a specific format. If they have not done so, consider choosing a framework that’s most relevant to your business model. For small and medium-sized businesses, for instance, B-Corp offers a more manageable ESG certification than GRI, which is more complex.

4. Apply transparency principles

Nearly all ESG frameworks have recommendations about best practices for transparency. It is important to apply these principles from the start by establishing internal audit and review structures.

5. Share the business value of your ESG data

Within the ESG report, ensure the data reveals a clear narrative regarding how environmental, social, and governance issues relate to the overall business strategy.

6. Communicate with infographics

Using infographics is an excellent way to communicate the most important aspects of your report, so people can quickly interpret its data. For instance, many companies start with a road map where they share the items with strategic value to the organization and its stakeholders. Placing this at the start of a report lays the foundation for the rest of the report.

7. Highlight the UN Sustainable Development Goals

In 2015, the United Nations (UN) adopted 17 Sustainable Development Goals (SDGs) for enhancing sustainability around the world. These goals cover a wide range of issues from climate action to reducing hunger. Companies can also include commitments to addressing these goals within their ESG reports. As a best practice, companies should define a baseline for a particular goal, and report towards a goal set for 2030.

Sustainable business benefits from continuous improvement, so setting targets and working steadily towards them can have a more lasting impact than a significant one-time action.

8. Follow the recommendations of well-known ESG frameworks

ESG frameworks are used to reduce the lack of consistency and make it easier to draw comparisons between companies in voluntary ESG reporting.

Some of the most popular frameworks include CDP (previously the Carbon Disclosure Project), the Global Reporting Initiative (GRI), and the Sustainability Accounting Standards Board (SASB).

The frameworks listed offer recommendations on the principles, criteria, and metrics used in reporting. Often, companies will report under a variety of different frameworks and clearly state them in the report.

While there is no universal standard for ESG reporting, there have been more efforts to standardize ESG frameworks recently. In March 2021, the International Financial Reporting Standards (IFRS) Trustees established an International Sustainability Standards Board (ISSB) and the Global Sustainability Standards Board (GSSB) to develop global sustainability reporting standards.

ISSB will develop standards for investors, while GSSB and GRI will develop standards for multi-stakeholder entities. In addition, different regions around the world have proposed laws for sustainability reporting, which would present their own standards used for compliance. The most notable example is the EU’s Corporate Sustainability Reporting Directive (CSRD).

9. Include TCFD climate risk reporting

Another framework that is often included in ESG reporting is the Task Force on Climate-related Financial Disclosures (TCFD). Created by the Financial Stability Board (FSB) in 2015, TCFD is related to other ESG reporting, but differs in some respects.

Most ESG reporting focuses more on the positive impacts and improvements businesses can make on behalf of their stakeholders. TCFD recommends they incorporate future-oriented planning for climate risks and opportunities into their business strategy.

In TCFD reporting, companies assess the financial risk associated with the direct and indirect impacts of the climate change transition. They assess how well their business can respond to these risks in scenario analysis, which explores different warming pathways for the future.

👉 The aim is to help businesses acknowledge and strategically prepare for the long-term impacts of climate change and the transition to a low carbon economy.

The UK became the first country to make TCFD reporting mandatory for 1,300 of the largest UK-incorporated companies. It enacted its law on April 6, 2022. The US SEC has a similar proposed requirement under review as of 2022.

There are even more ways to make sure your company adheres to its ESG reporting requirements:

• Set future goals and targets by setting forward-looking goals and targets improve the credibility of an ESG report. Investors seek information not only on past performance, but the overarching ESG strategy and how it is implemented within a business. Especially for climate change, businesses should provide clarity on their long-term outlook for transitioning to a low carbon economy. This helps investors assess the potential for risks such as stranded assets.
• Use the financial reporting timeline as one of the best practices for adhering to ESG reporting requirements. This includes making sure your financial review is up-to-date and made public to whichever stakeholders necessary. This is one of the ESG reporting requirements that should be implemented annually. Ideally, the CFO and Board of Directors will review ESG performance alongside the financial performance of a company. Overtime, ESG trends have encouraged more integration between ESG and the underlying business strategy. ESG and financial reporting have become integral to one another, particularly for investors purposes. Companies can streamline their processes by using the same annual finance reporting timeline for ESG.
• Identify ESG reporting requirement links to financial performance seeing that investors are often looking at ESG performance from a financial lens, companies can facilitate easier review by estimating the financial impacts of their ESG activities. Financial impacts from issues like energy cost reductions, savings from employee retention, route optimization, and product redesign offer concrete evidence of the value of your ESG activities.
• Highlight the board’s ESG oversight by including the structure in place for board members’ review of ESG activities and performance. This can help to give investors and stakeholders a clearer picture of their level of oversight. Companies whose boards view ESG an important strategic asset are more likely to persuade investors to take their efforts seriously.
• Incorporate ESG in risk management by ESG criteria are increasingly seen as a source of business risk and opportunity. In your ESG report, it’s important to describe how ESG integrates into existing enterprise risk management (ERM) systems. For more details on how to achieve this, seek the guidance of the Committee Sponsoring Organizations of the Treadway Commission (COSO).
• Internally audit ESG reporting processes in a similar manner to corporate financial accounting. This means that ESG reporting requirements can better be followed when subject to control measures to ensure accuracy of the reports. Companies can opt to use external audits, or third-party assessments of the data for verification. The procedures and control processes used to audit the reporting information should be clearly disclosed within the report as well. This improves investor confidence in the quality of the data provided in an ESG report and aids transparency.
• Offer downloadable data as this helps information to be more accessible investors and stakeholders. This way, external reviewers can easily analyze the data – allowing them to more easily decipher if your company is meeting ESG reporting requirements.
• Tell your ESG story to encourage other companies to work harder to meet their ESG reporting requirements – positive influence can help to promote better measures and greater interest in following ESG reporting requirements!

If reading this article about ESG reporting requirements has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!

Working to fight against climate and figure out the best ways your company can make sure it adheres to ESG reporting requirements can be difficult, but don’t worry – Greenly is here to help. Click here to schedule a demo to see how Greenly can help you find ways to improve energy efficiency and decrease the dependency on fossil fuels in your own company. 

Greenly can help you make an environmental change for the better, starting with a carbon footprint assessment to know how much carbon emissions your company produces.