Why is ESG reporting important?

But before we go any further, remember: the question above is only half the picture. 

After all, anyone can string bits of relevant data together and produce an ESG report. It’s the so-called ‘tick-box’ approach, and up till recently, it would have been enough in more cases than you’d think. 

But now it’s different. ESG reporting, by itself, isn’t important. Good ESG reporting is what’s important. 

If the information your company presents doesn’t follow best-practice, stakeholder responses will be indifferent at best and angry at worst.

Environmental, social and governance (ESG) are becoming core pillars of corporate activity. 

Companies exist to make a profit, but while doing so, they also have responsibilities to the world, its people, and themselves. At least, that’s how the modern stakeholder sees it. 

Living up to those responsibilities is one thing, but if you can’t communicate that to stakeholders in a meaningful way, your efforts get lost. 

At the same time, many organisations that communicate their progress use vague, brief or downright misleading language. Among other things, this contributes to greenwashing. Authorities hate this practice, and many are now taking steps to stamp it out.

This is the start of why ESG reporting is so crucial.

Several reasons. Depending on your industry, some may be more relevant than others:

Investors, consumers and governments are your usual audience regarding ESG. 

In the past, many of them would have been okay with the ‘tick-box’ approach. Now, with the prominence of greenwashing and increased scrutiny of social and climate policies, it’s a different picture. 

As a result, your audience now expects comprehensive data – well-presented and reflective of company strategy.

In many industries, it’s a severe reputational risk to fall short of ESG reporting obligations. 

For example, consumers may react badly to your perceived indifference to the environment, or investors may shy away from future funding because they don’t think their money goes where they want. 

Navigating this kind of trouble can be extremely tricky.

Companies used to engage in ESG reporting simply because it looked good. Now, it’s a different story. 

For example, lawmakers and watchdogs in some of the world’s largest jurisdictions have introduced new laws to standardise what companies must report about their climate risk. 

In the EU, the Corporate Sustainability and Reporting Directive (CSRD) entered into force in January. The Securities and Exchange Commission is eyeing something similar for US businesses.

The lack of a universal reporting standard is still a problem, but promising candidates have emerged. 

In addition to the CSRD standards for Europe, other examples include those of the Global Reporting Initiative (GRI), the International Sustainability Standards Board (ISSB), and the task Climate-Related Financial Disclosures (TCFD). 

Stakeholders will look at these standards as what separates bad ESG reporting from good ESG reporting. If you know them, you’re closer to the latter.

Don’t always consider the ramifications of getting ESG reporting wrong; consider also the benefits of getting it right. 

Good reports instil confidence in a business’ rounded approach to governance. It shows that strategy integrates profit and care together. 

In addition, several studies and news cases have shown many firms need to catch up in their ESG reporting duties. Some doubt their reporting skills, and others have admitted that they don’t even have ESG KPIs at the board level. 

If your company is prepared to report correctly, it will stand out from this confusion.

ESG reporting is essential because stakeholders want it, governments increasingly require it, and success is borne from it. 

The good news is that if you’re unfamiliar with the ins and outs of ESG reporting, there are courses to help you along.