Here are just some of the reasons companies release ESG reports.
- To meet regulations. Certain places, such as the EU, have reporting requirements that oblige companies to be as transparent about ESG issues as possible.
- To cultivate confidence. If your environmental, social, and governance impacts are positive, an ESG report can be your chance to show off. You can create confidence in your organisation from stakeholders, consumers, and potential investors by reporting transparently on your positive impact. With consumers more interested in sustainability than ever, you’re sure to win a few new customers.
- To increase accountability. Accountability is actually a good thing for businesses. Not only does it ensure that an organisation is constantly doing what’s best for its employees, stakeholders, and customers, but it also helps to build credibility with external players.
What’s Included in an ESG Report?
ESG reports contain in-depth information about each of the three ESG factors.
This section looks at what organisations are doing to tackle climate change and focuses on sustainability reporting and environmental impact. You can expect to see information such as:
- How a company is reducing its carbon emissions.
- Whether they’re using fossil fuels or renewable energy to power their operations.
- The carbon impact and greenhouse gas emissions of their supply chain.
- How the company preserves biodiversity, air quality, and water quality.
- How the company is using resources responsibly and reducing waste.
The social branch of an ESG report looks at what a company is doing to improve lives and society at large. In this section of the report, you can expect to see ESG disclosures relating to the following topics:
- Diversity and inclusion initiatives within the company.
- Human rights, labour standards, and ethical standards within the supply chain.
- The organisation’s level of employee engagement.
- Data privacy and protection measures.
- The organisation’s impact on local communities.
The last of the ESG metrics that an ESG report measures is governance. Within this section of an ESG report, you can expect to find:
- Lobbying and political contributions.
- Whistleblower programmes.
- Board composition.
- Executive compensation.
- Internal controls.
- Shareholder rights.
- The structure of your audit committee.
- The policies and procedures that govern your leadership.
When all these ESG factors are combined into one report, consumers get an idea of an organisation’s general impact on the world at large, for better and for worse. ESG reporting can encourage companies to do better, for fear of being caught out or turning off customers due to a poor report.
What are ESG Scores or ESG Ratings?
An ESG score or rating is a score or number given to an organisation based on the factors contained within the ESG report.
Like most types of reporting, consumers want a quantifiable number that can be assigned to companies so they can get a better understanding of how ethical and sustainable a particular company’s practices are.
A company’s ESG score can give you an idea of how well a company meets its ESG commitments, its ESG performance, as well as record on human rights and sustainability. Typically these scores are assigned by third-party providers. Each third-party provider uses its own set of criteria to score an organisation, but they’re all along the same lines.
Here are the biggest third-party ESG score providers:
- Bloomberg ESG Data Services. They cover more than 100 countries and 11,700 companies.
- Sustainalytics ESG Risk Ratings. This organisation mainly helps investors identify financial risks and covers more than 12,000 companies.
- Corporate Knights Global 100. This is an annual ranking of corporate sustainability performance, created by the global magazine Corporate Knights.
- Dow Jones Sustainability Index Family. This index looks at the most sustainable companies in more than 61 industries.
- Thomson Reuters ESG Scores. This index looks at more than 6,000 companies worldwide.
- RepRisk. RepRisk covers the ESG risk assessments of more than 160,000 companies, all with the help of AI.
The Role of ESG Reports
ESG reports fill an important role in compliance with ESG regulations – the strictest of which can be found in the EU.
But aside from giving businesses the opportunity to report on their operations’ impact and improve transparency, ESG reporting is part of a wider shift that focuses on holding businesses accountable for their social and environmental output.
With global corporations being some of the biggest producers of greenhouse gas emissions, transparency and credibility have never been more important. ESG reports are just one of many ways that governments and consumers alike can hold businesses accountable for their actions.