Read this blog to discover more about ESG reportingWhen it comes to sustainability and ESG strategies, organizations have advanced from using compostable straws to embedding sustainability into their business practices, processes, product development, operations, and strategy. Many organizations are rejigging their business models, re-organizing corporate structures, and spending substantial time, money and resources to embed sustainability into core strategies. As a result of this investment, many have come to see environmental, social, and governance (ESG) reporting, not as a regulatory burden, but as a tool to attract investors and financing. Of course, companies want to do good and be ethical and responsible. But they also want to shine in the eyes of public, stand above the competition, and attract investors and financing. Reporting ESG performance in ESG reports is a way to make this happen. Before anyone can begin to prepare their processes for ESG compliance, we must build our understanding of ESG, how it different from sustainability and CSR efforts, and what it means to investors and for today’s CFOs.
What is ESG reporting?
ESG reporting is the disclosure of environmental, social and corporate governance data. As with all disclosures, its purpose is to shed light on a company’s ESG activities while improving investor transparency and inspiring other organizations to do the same. Reporting is also an effective way to demonstrate that you’re meeting goals and that your ESG projects are genuine — not just greenwashing, empty promises, or lip service.
Since ESG reports summarize the qualitative and quantitative benefits of a company’s ESG activities, investors can screen investments, align investments to their values, and avoid companies with the risk of environmental damage, social missteps or corruption.
What’s the difference between ESG and sustainability?
ESG and sustainability are sometimes used interchangeably, but there are some notable differences.
- Generally speaking, sustainability refers to a company’s relationship to the environment, where ESG extends that relationship to social responsibility and corruption.
- ESG is an external investment framework, or a form of metrics, that helps companies communicate their initiatives and investors assess the company’s performance and risk. On the other hand, sustainability is seen as an internal framework that guides the organization’s capital investments. In other words, sustainability is the motivation, ESG is the reported outcome.
- Since ESG is a reporting framework, it is more relevant to publicly traded companies looking to attract and inform investors or any other business looking to attract financing.
What’s the difference between ESG and CSR?
ESG aspires to be a set of disclosure standards that companies complete to communicate sustainability initiatives. Stakeholders, like investors, use ESG reports to screen their investments. Corporate social responsibility (CSR) is a business model where a company’s activities enhance the world around them.
As an example, US retailer, Patagonia has very strong CSR. Everything the company does is governed by its CSR. It urges conscious consumption to a point where it would sacrifice revenue for its values. Instead of pushing sales, the company offers repair services for its products, urging longevity over consumption. It resells its used products. And it actively rebels against fast fashion retail business models, ensuring its materials are sustainable and human resources are paid a living wage.
What is the current state of ESG reporting?
On June 7th, 2021, G7 finance ministers announced a commitment to mandate climate reporting in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). While a universal standard does not yet exist, ESG reporting does exist in the form of regional reporting frameworks, voluntary standards, and national legislation that vary significantly. Oftentimes, organizations will include ESG reporting into their annual reports to demonstrate how sustainable the business is.
Read the CCH Tagetik quick guide and discover today’s ESG challenges and how CCH Tagetik ESG and Sustainability Performance Management enables you to comply with evolving ESG requirements while optimizing scoring, reporting, planning, and performance.