ESG and sustainability reporting – What are they and what are the trends?

Mar 16, 2022

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Global issues such as emissions, pollution, associated climate change disasters, discrimination at the workplace, and several others have been discussed among corporations and in society for decades.

The Big Question

The big question that then arises is ‘Why is there a sudden interest among organizations and corporations across the world to invest significant time and resources in disclosing their non-financial performance?’

Don’t take our word for it. As per BSR, an organization of sustainable business experts, 20% of S&P 500 companies published sustainability reports in 2011. That number has increased to 90% by 2019!

The Answer

There are two logical explanations for this.

First, the advent of ever-faster internet speeds and the social media era has changed how information is disseminated.

While in the ’90s, the UN, government agencies, and social organizations were leaders in the climate change discussion, nowadays, everyone is much more aware of the damage caused by the activities of companies. This awareness has led to pressure on companies who recognize that ‘talk is cheap’ and proactive actions and results are required.

Second, the pressure comes from better-informed stakeholders who have questioned the very principles of traditional investing and demanded more socially and environmentally conscious decisions from the organizations they have already or are likely to invest in.

Thus, organizations are now benchmarking their non-financial performance and reporting it transparently. While some do it out of an ambition to be a better corporate citizen, others do it out of sheer pressure from their peers and investors.

This evolution in reporting has led to what has been termed as ‘sustainable investing’, also known as ‘ethical’ or ‘impact’, where the ethical values of an organization are factored in before investment decisions are made.

(Feel free to read our blog on sustainable investments and related terminology for further information.)

And as investors became more aware and conscious, regulatory bodies evolved to offer improved reporting frameworks and standards, convincing organizations to comply. This gave rise to sustainability and ESG (E-environment, S-social, and G-governance) reporting. While voluntary in India, they are mandatory in several other countries.

The Difference Between Them

While largely accepted as two sides of the same coin, interpretations can change depending on who the question is posed.

Typically, a sustainability report talks about the company’s relationship with the environment, while an ESG report extends it to social responsibility and governance. Sustainability reporting is often considered an internal framework that guides the organization to invest in areas other than its business. ESG, on the other hand, is an external framework that helps the organization communicate its initiatives to its stakeholders so that they can make informed decisions.

In simple words, sustainability reporting can be considered as the journey toward ESG reporting.

Setting differences aside, it is certain that both sustainability and ESG reporting standards are continuously evolving and have a significant impact on the value of companies, future growth, the perception held by the public, and their ability to raise future capital.

ESG and Sustainability Reporting Frameworks

The rise in sustainability and ESG reporting has led to experts and not-for-profit organizations studying and benchmarking them. This led to the formation of ESG and sustainability reporting frameworks that help organizations improve their reporting standards.

The following are some of the more widely-recognized frameworks that help suit the needs of companies and stakeholders:

• The Global Reporting Initiative (GRI)
• The Sustainability Accounting Standards Board (SASB)
• International Integrated Reporting Council (IIRC)
• The Workforce Disclosure Initiative (WDI)
• The Task Force on Climate-related Financial Disclosures (TCFD)
• The Climate Disclosure Standards Board (CDSB)
• The CDP (formerly the Carbon Disclosure Project)

How the Two are Evolving

Here are some statistics from KPMG to give you an understanding of the rapid evolution of ESG and sustainability reporting across the world:

• Globally, 80% of companies report on sustainability.
• North America has the highest regional sustainability reporting rate with 90% of all companies doing so regularly.
• Japan and Mexico have the distinction of being among the first countries with 100% of all top companies reporting on sustainability.
• India, France, Japan, and Malaysia have seen a huge surge in ESG and sustainability reporting.
• The Global Reporting Initiative (GRI) is the dominant global standard for sustainability reporting.

ESG and Sustainability Reporting Trends

• The need for better quality and volume of ESG and sustainability data: While many organizations have started disclosing non-financial data in the form of ESG and sustainability reports, the demand for more accurate data and larger data samples continues to get louder. Companies now keep track of this data and improve metrics to be able to represent a transparent and fair perspective of their CSR and sustainability activities.
• Use of sustainability reporting platforms: With the surge in sustainability reporting combined with the development of new technologies, organizations are seeing the benefits of using sustainability reporting platforms that allow them to segregate and maintain data, while also keeping track of the various frameworks. This further enhances the quality of their reports and strengthens the confidence of future investors and stakeholders who read the company’s sustainability reports.
• Reporting on Scope 3 emissions: Scope 3 emissions are those produced from assets and activities that are not directly controlled by the company. They comprise indirect emissions emanating from across the value chain of an organization such as business travel, employee commute, wastewater treatment, and transportation/distribution. Reporting of steps taken by companies to reduce scope 3 emissions and the results produced, is a growing trend.
• Dominant themes in the world of reporting: Dominant themes include addressing problems such as anti-corruption, climate change, labor, and human rights. The disclosure of steps taken to deal with these challenges within the parent organization and also among their global suppliers and vendors has become imperative!

ESG and sustainability reporting has become ever more sophisticated over the last half a decade. This combined with the growing trends based on the demands of stakeholders, potential investors, and regulatory changes require organizations to ensure that further actions are taken, results tracked, and finally presented in an easy-to-read format.

In addition, companies have seen the branding benefits of creating award-winning reports, which is a matter of pride and also benefits value generation. Therefore, they turn to design agencies to help them create the impact they aspire to.

At Report Yak, we help businesses conceptualize and strategize the content and design to create impactful ESG and sustainability reports. Get in touch with us and we will create a trendsetting report for you.