What is ESG reporting and how do you set it up?

We are experiencing a climate emergency, and understanding environmental and social risks has become increasingly important for businesses and for investment decisions.

Environmental, social and governance (ESG) indicators, also called extra-financial indicators, are becoming key in investor decision-making. According to a report by Edie published in July 2022, nearly 74% of the world's largest investors have focused more on ESG investments since the Paris Agreement (2016).

Until now, the emergence of CSR departments within companies was motivated in particular by the desire to remain attractive for talents and customers. Now, pressure from investors is also helping to encourage companies of all sizes to implement ESG reporting to be more sustainable.

While implementing ESG reporting may seem long and tedious, it is possible to develop your ESG reporting strategy with serenity and efficiency by using the right tools and based on best practices.

In this article, we present:

• What is ESG reporting?
• The 5 reasons to implement ESG reporting
• How to set it up?
• How to choose an ESG reporting framework?
• How can Beavir help you with your ESG report?

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What is ESG reporting?

ESG is an abbreviation (Environment, Social and Governance) that is commonly used to refer to all the extra-financial impacts of companies.

ESG criteria make it possible to assess a company's sustainable practices. ESG measures its environmental impact, its social responsibilities, and its governance standards, in order to guarantee long-term sustainability and an ethical commitment to its stakeholders.

For example, this may correspond to the reduction of greenhouse gas emissions or the control of health and safety risks for employees.‍

ESG reporting or ESG report consists of disclosing information aimed at transparently showing the performance of a company in these three key areas: environmental sustainability, social sustainability and corporate governance.

In order to promote the transition of capital and investments towards more sustainable models, the European regulator has considerably tightened the rules applicable to financial actors, in particular through the CSRD. Businesses are obliged to communicate transparently about the impacts of their investments.

To be able to meet these obligations, investors rely on ESG reporting data. They allow them to make their investment decisions or to analyze the impacts of the companies in their portfolio, thus encouraging a growing number of companies to implement an ESG report.‍

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The 5 good reasons to implement ESG reporting

1 - ESG reporting improves the attractiveness and competitiveness of companies in terms of sustainability

‍ Stakeholders' expectations in terms of extra-financial performance are exploding everywhere: employees, customers, business partners, investors. Everyone expects companies to better monitor and better manage their sustainable impacts. Setting up ESG reporting makes it possible to meet all of these expectations, and thus to strengthen its attractiveness and brand image.

Conversely, businesses that do not do so are likely to suffer the consequences:

• Loss of customers and markets
• Lack of attractiveness for new talent
• Loss of confidence among investors who prefer to invest in companies that measure their risks.

Carrying out ESG reporting is therefore a guarantee of significant trust for stakeholders.

2 - ESG reporting makes it possible to identify and anticipate risks for the company

The risks associated with extreme climate events that are about to increase or to modern slavery in supply chains are among the biggest risks that businesses face. Companies that implement ESG reporting can anticipate, identify, mitigate, and address risks before they become a problem, by implementing environmental and social strategies based on ESG reporting data.

3 - ESG reporting reduces operational costs

ESG reporting allows companies to collect reliable ESG data to make more effective and strategic decisions about budget allocation. This often reduces operational expenses such as energy, water, or waste costs.

4 - ESG reporting limits the risks of unintentional greenwashing

Companies that do not implement ESG reporting are not transparent with the information and data they communicate. Or those who focus on the wrong indicators (or indicators that are not relevant to their sector of activity), and who therefore report on erroneous data, have a higher risk of being accused of greenwashing. Following the right ESG indicators can help businesses prevent this risk.

Setting up ESG reporting within the company allows you to cultivate a culture of transparency around data and to strengthen trust with your investors, employees and customers. When you start your ESG reporting, remember that transparency and the continuous improvement of performance are more important than perfection.

5 - ESG reporting makes it possible to anticipate regulatory requirements in terms of sustainability

Several standards govern the publication of ESG reports to ensure the transparency of sustainable business practices. Among them, the Global Reporting Initiative (GRI) provides guidelines for reporting on environmental, social and governance impacts, while the ISO 26000 standard guides companies on social responsibility and sustainability. The Sustainability Accounting Standards Board (SASB) also define industry standards for ESG reporting. Finally, the European CSRD directive imposes strict sustainability requirements for large companies in Europe.

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How to set up ESG reporting?

1 - Set up a dedicated ESG team

Many companies feel overwhelmed by the numerous ESG reporting frameworks and frameworks, indicators, standards, and legal and regulatory requirements in the ESG landscape.

A short-term answer may be to hire a sustainability consulting firm to tackle these tricky questions. However, while experienced help has many benefits and is strategic in some situations, relying solely on external advice prevents your organization from truly integrating ESG into its DNA. Calling on a firm can be very useful for a dedicated mission (calculating a carbon impact, implementing a diversity policy with a specialist, supporting you in defining your sustainable development strategy, etc.), but it is important that the conductor of your ESG strategy be internal.

Indeed, ESG objectives must be correlated with those of the company: integrating ESG into the decisions of the management body (s) will make the company's sustainable strategy more relevant and the company more resilient; conversely, a silo strategy will have less impact and be less effective.

Although the road can be long and full of obstacles, especially at the beginning, it is essential to set up a team (composed of one to several people depending on the size of your business). We advise you to recruit ESG experts or find talent that already exists internally.

2 - Align yourself with the appropriate ESG standards

Once you've set up your dedicated ESG team, the next step is to define your reporting framework, i.e. all the indicators you will monitor, the way to measure them, or the calculation and consolidation methods. Using a framework will thus guide your entire sustainable reporting process, telling you not only what you need to measure and why, but also how to communicate your results effectively.

3 - Invest in a reporting platform to collect, analyze and use ESG data

Data is the lifeblood and the starting point for any sustainable strategy. In the same way, the quality and reliability of these data, since they are the ones that will guide the company's strategy, represent one of the biggest challenges of ESG reporting for companies. This is especially true for large companies and investment funds that need to collect information from numerous subsidiaries, partners and suppliers.

As a result, more and more businesses are beginning to see the benefits of investing in an ESG reporting platform for collecting and analyzing their extra-financial data. An ESG reporting platform helps the company:

• To collect information from numerous stakeholders (automatic data collection, real-time monitoring, automatic reminders).

• To have verified, reliable and auditable information (limit human errors, bad calculations), and thus limit bad strategic decisions or unintentional greenwashing.

• To manage extra-financial performance through clearer data and a better understanding of impacts and risks (visualization of the company's performance and progress, integrated dashboard, monitoring of actions and results obtained).

• To save time on all tasks with low added value and to focus on impact.

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How to choose an ESG reporting framework?

In order to choose the right framework for your ESG report, take an interest in the expectations of your stakeholders. See what the expectations of your investors and customers are. In general, investors will appreciate internationally recognized standards such as the GRI (Global Reporting Initiative) or the SASB (Sustainability Accounting Standards Board), while customers will prefer labels.

At the same time, it is important to refer to the obligations and regulations specific to the country in which your business is located.

In this paragraph, we are going to take the time to introduce you to some of the obligations and frameworks concerning ESG reporting.

Some ESG reporting frameworks

GRI (Global Reporting Initiative) 

It is one of the references the most used in the world. It offers a comprehensive approach, covering a wide range of environmental, social and governance indicators. It's suitable for businesses that want to provide a holistic view of their sustainability impact and risk.

SASB (Sustainability Accounting Standards Board)

This framework is oriented towards investors, with an emphasis on material issues specific to each sector of activity. It is often chosen by listed companies or those in relationship with financial investors.

TCFD (Task Force on Climate-related Financial Disclosures)

Focused on climate risks, this framework is often preferred by businesses looking to show how they manage. financial risks associated with climate change.

CDP (Carbon Disclosure Project)

The CDP makes it possible to assess companies on their performance in terms of climate change, deforestation, water management, plastic waste and biodiversity.

ISO 26000 standards

The ISO 26000 standard for social responsibility can be used as a guide rather than a reporting framework, it helps to structure the approach.

European taxonomy

The European taxonomy is a regulatory framework that classifies economic activities according to their environmental sustainability, in order to guide investments towards green projects. For example, the construction of a building is considered “green” if it meets certain energy efficiency standards, such as a maximum threshold of energy consumption per m².

SDGs (Sustainable Development Goals)

It is a set of 17 goals set by the UN to promote global sustainable development by 2030. It is unlikely that your CSR strategy addresses all 17 SDGs, but you can select several according to your sector and priorities.

Regulatory frameworks: the CSRD and the DPEF

Ensure that the chosen framework meets regulatory requirements in the regions where you operate. For example:

• CSRD (Corporate Sustainability Reporting Directive) in Europe imposes strict criteria for the ESG reporting of organizations from 2024.
• DPEF (Extra-Financial Performance Declaration) in France imposes specific obligations in terms of ESG reporting.

This list is not exhaustive, there are also sustainable standards on a specific or sectoral impact (e.g.: Fair Wear Foundation). It is up to you to define which one will best suit your company's expectations to carry out your ESG report.

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How do you set up your ESG reporting strategy? Beaver accompanies you

Set up your ESG reporting strategy with Beavir to easily collect, analyze and exploit your company's ESG performance.

• Structure and automate low value-added tasks like data collection.
• Reuse the data collected for all your needs: certification, communication, ESG reporting.
• Track your progress and make the right decisions to improve your impacts and limit your risks.

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Conclusion

Conducting ESG reporting is becoming essential for companies seeking to comply with increasing sustainability and governance requirements.

Through an in-depth analysis of the sustainable data collected, organizations can produce reports that are transparent and aligned with standards such as CSRD, which reinforces their credibility.

Well-structured reporting makes it possible not only to demonstrate a concrete commitment to sustainable development, but also to anticipate risks and to better manage information on their impacts in order to meet the expectations of stakeholders.

By adopting best practices and appropriate standards, businesses can produce reliable reports and make more effective strategic decisions.

Finally, ESG reporting is becoming a powerful management tool, oriented towards long-term performance and better resilience in the face of environmental, social and economic challenges.