The ESG Reporting Guide & How To Be Compliant
Here are the topics we'll discuss in this post:
- ESG reporting is the disclosure of environmental, social, and governance practices of an organization. As markets shift towards more intentional, sustainable practices, ESG reporting is becoming increasingly crucial for businesses across industries.
- To ensure ESG reporting compliance, companies should identify applicable regulations and standards, gather reliable data on ESG metrics, and integrate ESG tracking with supply chain traceability.
- Critical to success is choosing the right ESG software or partner that can provide your business with environmental and social source-level data directly tied to your supply chain operations in real time.
ESG: Three letters with a whole lot of meaning from metrics to reporting to investing.
As due diligence regulations gain momentum globally, and consumer activism continues pushing for sustainable products, ESG reporting has finally shifted from being a merely desirable practice to an essential code of conduct for business. But what is it? Why is it important? And how can companies ensure they meet ESG compliance with the ever-changing regulatory landscape? Can you have ESG reporting without supply chain traceability? And is there reliable ESG software to help “do it all”?
Introduction to ESG Reporting
ESG reporting is the disclosure of data related to the environmental, social, and governance practices of an organization. This serves as a tool for investors to distinguish responsible companies in investment screening and offers consumers transparency regarding companies that uphold their sustainability commitments. As markets shift toward more intentional, sustainable practices, ESG reporting is becoming increasingly crucial for businesses across industries.
While some critics dispute the effectiveness of tracking ESG due to a vast amount of frameworks, most experts recognize that while current ESG tracking and reporting falls short, it’s not going away anytime soon. The investor community has gravitated towards ESG, with ESG-rated investments accounting for around a quarter of the assets under management in the US, amounting to approximately $12 trillion. ESG policies will change and standards will rise, so forward-thinking companies will get a handle on their ESG goals, metrics, and reporting fast! Starting small is always an option—tracking the social or environmental impact of one ingredient, or those of the components of one product. But the consensus is: the sooner you start, the better.
In sum? Companies who aren’t already hyper-aware of ESG compliance and metrics should start thinking about it immediately. But, more than that, they need a way to prove every claim they make with data!
ESG Reporting Frameworks
First things first, is ESG reporting mandatory? Yes and no. It depends on the country and the regulation. A European Corporate Governance Institute study identified 25 countries that introduced mandates for firms to disclose ESG information between 2000 and 2017.
From the EU Corporate Sustainability Reporting Directive (CSRD) to the US SEC Climate Reporting Proposal, the shift to mandatory ESG reporting is gaining momentum. ESG frameworks are commonly utilized systems, often on a voluntary basis, that aim to standardize the disclosure and reporting of ESG metrics. With so many frameworks available, it can be overwhelming to know where to start. To help guide your efforts, here are some renowned ESG frameworks:
1. Global Reporting Initiative (GRI)
GRI's reporting framework is globally recognized and comprehensive. It empowers businesses, whether public or private, to understand and report on their economic, environmental, and social impact. With GRI's standards, stakeholders gain access to extensive information on sustainable development, ensuring transparency and accountability.
2. Sustainability Accounting Standards Board (SASB)
Part of the International Sustainability Standards Board (ISSB), SASB standards provide a range of disclosures for industry-specific sustainability factors that significantly impact financial performance. In line with the ISSB’s proposed general requirements for sustainability-related disclosures, SASB standards will provide support for industry-related matters.
3. Task Force on Climate-related Financial Disclosures (TCFD)
TCFD is an international initiative established by the Financial Stability Board (FSB) to develop a standardized framework for disclosing climate-related financial information. The TCFD framework consists of four core elements: governance, strategy, risk management, and metrics/targets. It encourages companies to disclose information regarding climate-related risks, integration of climate factors into their business strategy, and specific metrics and targets related to climate performance.
ESG Reporting Metrics
When it comes to measuring ESG metrics, companies rely on a mix of quantitative (numerical values) and qualitative (actions, strategies, processes) data to demonstrate to stakeholders their dedication to sustainability. Since the ESG landscape is constantly evolving and each industry and geographical region face unique issues, there is no one-size-fits-all set of metrics. Instead, focus on measuring verifiable data specific to your region and industry, starting with one product or ingredient and scaling up over time. Although ESG metrics vary, common examples found in reports comprise:
- Greenhouse gas emissions (Scope 1, 2, & 3)
- Waste management
- Water usage
- Labor standards (human rights)
- Gender equality
- Diversity, equity, and inclusion (DEI)
- Data protection and security
- Health and safety
- Executive compensation
- Board diversity
- Regulatory compliance
- Shareholder rights
- Ethical business model
Ensuring Compliance with ESG Reporting Requirements
To meet ESG reporting compliance with relevant regulations and standards, companies need to take a strategic and systematic approach. Here are three critical steps that companies can take to ensure compliance:
- Identify applicable regulations and standards: First and foremost is identifying the national and international regulations, as well as industry-specific standards, impacting your business. Once you have identified the disclosure requirements relevant to your company, you can create a baseline for the ESG metrics you track to ensure compliance. However, you can't afford to get complacent - the ESG landscape is constantly evolving, so staying up-to-date is critical to staying ahead of the curve.
- Gather reliable data and stay agile: Using an ESG framework alone won’t save you from the risk of greenwashing. It’s all about how you use the ESG framework. Ensure that whatever ESG-related claims you decide to make are backed by tamper-proof and reliable source-level data. Leaders in ESG understand that this is not an exercise in ticking a box, rather it’s about consistent progress. This includes regularly reevaluating your ESG metrics and tracking and searching for ways to improve and scale.
- Integrate ESG tracking with supply chain traceability: Traceability and ESG tracking are intricately connected. ESG tracking is incomplete if it is not directly connected to what’s happening in your supply chain. And incomplete data means risking fines and reputational damage for non-compliance. Most companies have blind spots in their upstream and downstream supply chains, from source to distribution to post-consumer lifecycle. Crucial to success is end-to-end supply chain traceability, with visibility of direct and indirect operations down to the source level.
How to Choose the Right ESG Software for Your Company
Whether you’re a health & beauty brand wanting to track the ingredients of your sustainably-sourced moisturizer, or a food & beverage company wanting to prove the percentage of recycled materials in your bottles, you can leverage ESG metrics and software to start tracking and accurately reporting on your impact today.
As ESG trends continue, more and more software and partners pop up claiming they can track, achieve, and back your sustainability claims. So how can you choose the right ESG software or partner for your company? We suggest selecting a partner or software that can provide you with the following four criteria:
Most ESG partners rely on spot-level audits or high-level shipping data that don’t truly prove compliance or impact, nor give them actual data about what’s happening in their supply chain. Ensuring that your ESG software can get your raw data from the source – and keep it unaggregated even after mass balancing or adding other ingredients – is crucial to guarantee clean, honest data.
Many ESG software or solutions today conduct audits or gather data on your behalf, resulting in third-party, delayed reports. Make sure that whatever partner you choose allows you to view, control, and report on your data in real time.
Environmental & social metrics
It goes without saying that you should verify the solution you choose can track the metrics you want to track. But just as important is its capability of tracking the inputs you need to get accurate metrics. For example, if you’re trying to prove gender equality throughout your supply chain, is your system tracking what female farmers are getting paid versus male farmers for the same commodity?
A direct connection to your supply chain
Most software solutions cannot get you true traceability down to the source or they do not integrate ESG tracking with their supply chain tracking. Whether you need to track carbon offsets or gender equality, you need software that gives you traceability and ESG visibility into every step of your supply chain. Choosing trustworthy ESG software that can help you streamline your efforts and connect them throughout your entire value chain from source (the farm, the landfill, the mine) to the shelf will be essential.
ESG Reporting & Compliance Conclusion
In today's world, it's not enough for companies to focus solely on profits. Investors and consumers are increasingly seeking transparency regarding a corporation's environmental, social, and governance practices. That's where ESG reporting comes in. While some may question its effectiveness, the bottom line is that companies need to start thinking about it now.
When it comes to ESG compliance, taking a strategic and systematic approach is key. This involves identifying applicable regulations and standards, gathering reliable data, and integrating ESG tracking with supply chain traceability. It's imperative to choose ESG software that provides source-level data, real-time reporting, verifiable environmental and social metrics, and a direct connection to your supply chain. By prioritizing ESG tracking and reporting and integrating it into their everyday operations, companies can drive smarter, more responsible business.
BanQu: A multi-solution software to help you achieve full ESG compliance — for any industry
BanQu is a true traceability platform built for companies across all industries, with multi-purpose solutions to prove your sustainability claims with real-time, source-level data. Our one-of-a-kind ESG dashboard enables companies to choose, track, and prove their ESG metrics throughout their entire value chains. Reach out to set up a discovery call with our team!