How Reducing Your Carbon Footprint Enhances Your Business: The Importance of ESG Reporting

Written by Johnnie Walker
Business PlanningEntrepreneurship

ESG reporting is a type of corporate disclosure that provides information on a company’s environmental, social and governance (ESG) performance. ESG reporting can be used by investors to make more informed investment decisions, and by companies to improve their carbon footprint.

What is ESG reporting?

ESG reporting is a relatively new concept that refers to the process of measuring and disclosing a company’s environmental, social, and governance performance. ESG reporting is a key part of corporate sustainability and responsibility initiatives, as it helps companies to set and track progress against sustainability targets.

The primary objective of ESG reporting is to provide investors with greater transparency into the sustainability performance of companies. ESG data can also be used to assess financial risks and opportunities associated with climate change, social issues, and other ESG factors.

ESG reporting is voluntary in most jurisdictions, but it is becoming increasingly common as investors become more aware of the importance of sustainability issues. ESG reporting covers a wide range of topics, from emissions to employee diversity.

It is important to note that ESG reporting is distinct from Corporate Social Responsibility (CSR) reporting, which focuses solely on the social and environmental impact of a company’s operations. CSR reporting is often seen as part of a company’s marketing strategy, whereas ESG reporting is primarily focused on providing financial information to investors.

In practice

ESG data can measure an organization’s progress on emissions reduction, waste management, water conservation, energy efficiency, human rights, and sustainability objectives. This in turn helps investors to identify which companies are making progress on sustainability issues and which ones are lagging behind.

ESG reports can also be used by companies to benchmark their ESG performance against their peers and to drive internal improvement.

ESG reporting can take many different forms, but all disclosures share the goal of giving investors and other stakeholders greater transparency into a company’s non-financial risks and opportunities. Some common examples include:

  • Carbon emissions reporting
  • Water usage reporting
  • Human rights reporting
  • Gender diversity reporting
  • Sustainability reporting
  • Environmental impact reporting

There are a number of companies that engage in ESG reporting. For example, IBM. The company publishes an annual Corporate Responsibility Report that details its progress on a range of ESG issues, including climate change, employee diversity, and supply chain sustainability. IBM’s commitment to ESG reporting is part of its wider effort to create a more sustainable business model.

Other companies that engage in ESG reporting include Patagonia and Ben & Jerry’s. Each of these companies has made a commitment to disclose their ESG impact to investors and the public. For example, Patagonia provides an annual report that details their progress on reducing greenhouse gas emissions, while Ben & Jerry’s reports on their work to promote sustainable agricultural practices.

Common reporting frameworks

ESG reporting can take many different forms, but most ESG reports share three common elements:

  • Environmental footprint. This might include data on emissions, water consumption, and waste generation.
  • Social indicators such as employee satisfaction rates and diverse supplier spending.
  • Governance issues such as board structure and executive compensation.

ESG reporting is not regulated by any supervisory authority, but there are various guidelines that companies can use to help them prepare their reports.

The most common framework for ESG reporting is the Global Reporting Initiative (GRI) guidelines. Developed through a multi-stakeholder process, the GRI guidelines provide a comprehensive framework for measuring and disclosing ESG performance. The guidelines are available free of charge and can be downloaded from the GRI website.

Other popular frameworks include the UN Global Compact Principles, the Carbon Disclosure Project (CDP), and the Sustainability Accounting Standards Board (SASB). The SASB has also developed a set of standards for ESG reporting, which focus on providing investors with key financial information about a company’s ESG performance.

While there is no one-size-fits-all solution for ESG reporting, these frameworks all provide guidance on what types of information should be disclosed, how it should be presented and which stakeholders to consider.

The future of ESG reporting
There are a number of reasons why ESG reporting is gaining popularity. Investors are becoming more aware of the risks associated with environmental and social issues. For example, they are increasingly concerned about climate change and its impact on the financial sector. Further, ESG reporting helps investors to assess a company’s long-term prospects. By understanding how a company is managing environmental and social issues, investors can get a better sense of its future performance.

ESG reporting is often voluntary, but some countries are beginning to mandate ESG disclosures for listed companies. As ESG reporting becomes more popular, business owners should be aware of future trends in this area:

  • There will likely be more regulations governing ESG reporting. For example, the Securities and Exchange Commission (SEC) is considering introducing new rules that would require companies to disclose their greenhouse gas emissions.
  • ESG reporting is likely to become more standardized. Investors will want to compare apples to apples when it comes to ESG data, so companies will need to report their information in a consistent way.
  • ESG data will become more accessible to investors. The advent of big data and artificial intelligence will make it easier for investors to find and analyze ESG information.

In recent years, there has been a growing demand for ESG data from investors, lenders, insurers, and other stakeholders. Many large companies now routinely publish ESG reports, and the practice is expected to continue to grow in popularity in the years ahead. As a result, ESG reporting is becoming an increasingly important part of corporate disclosure. It is also becoming increasingly important to investors who are interested in supporting sustainable businesses.

Many companies are now realizing the importance of ESG reporting and how it can enhance their business. By providing a comprehensive report on their environmental, social, and governance practices, they are able to build trust with investors and other stakeholders.

Organizations that adopt ESG reporting improve their performance by gaining new insights, increasing operational efficiencies, and uncovering growth opportunities. Businesses who report on their ESG progress are also perceived favorably by current and potential investors as well as the general public. If you’re looking to give your business a boost, consider adopting ESG reporting practices.

About the Author

Johnnie Walker

Co-Founder of Rooled, Johnnie is also an Adjunct Associate Professor in impact investing at Columbia Business School. Educated in business and engineering, he's held senior roles in the defense electronics, venture capital, and nonprofit sectors.