ESG reporting is a sort of organizational disclosure that describes an organization’s environmental, social, and governance (ESG) commitments, actions, and plans. The practise of ESG reporting is becoming more well-known as investors, market analysts and shareholders in addition to the common public shift to a more comprehensive perspective on how businesses should perform and be judged. In the past, the board of directors’ main goal was to increase value for shareholders, with financial metrics being used to show performance.
However, this solely financial concentration is no longer sufficient to persuade investors and shareholders of the company’s long-term viability. In addition to shareholders, investors and market analysts, even regulatory agencies and employees are becoming more interested in how a company is positioned to prevent and address existential concerns like climate change, ramifications of environmental damage caused by production, the evolution of social justice and challenges to global health.
As a result, businesses are giving greater priority to their ESG strategies to make sure they have a long-term strategy for minimising, managing, and averting present and developing risks related to the environment, society, and governance. The real value, however, comes from adopting, monitoring, reporting, and improving the strategy. Board of Directors must give the in-depth data that ESG reporting provides in order to show that the company is functioning sustainably and correctly, recognising significant risks and opportunities for growth. Therefore, developing ESG reporting expertise is a worthwhile endeavour that is best handled as soon as possible.
Parameters of ESG reporting:
Since environmental, social, and governance (ESG) encompass a wide range of activities, reporting is a substantial task for board of directors, leadership, CXOs as well as corporate governance experts such as corporate secretaries, general counsels as well as executive assistants who facilitate and maintain records. Board of Directors may have trouble deciding what to include, and at times, there are possibilities on lack of agreement on an optimal strategy. A corporation may earn different ESG scores depending on which methodology was used to analyse their metrics because different ESG rating organisations place varying weights on certain areas. However, a number of initiatives that are creating consensus on the most efficient method have been motivated by the realisation that firms will be more receptive to ESG reporting if they can be assured of a level playing field.
In the United States, the Financial Stability Oversight Council (FSOC), which includes the heads of several federal agencies such as the SEC, the Treasury Department and the Federal Reserve Board among others, has urged regulators to concentrate on building capacities, proper disclosures, authentic data, and thorough assessment climate-related vulnerabilities as well as their mitigation. Additionally, the FSOC has also established a recent staff-level group at the interagency level to act as a coordinating body to support the members of FSOC by sharing necessary information.
Impacted by such national regulations on ESG reporting, the World Economic Forum has established a set of metrics and disclosures on non-financial factors in collaboration with the International Business Council. The measurements of these metrics are purposefully built on current standards in order to avoid ruining the progress that has already been done over the past few years. Organizations should start making sure they report their impacts and performance in each area because the primary parameters of WEF’s sustainable value creation have a good chance of becoming the industry standard for ESG reporting. The four main categories and some of the metrics that should be included in ESG reporting are outlined below.
Areas of reporting:
As per the WEF report, the primary ‘pillars’ for ESG reporting are People, Prosperity, Planet and Principles of Governance. These areas can be followed by organizations around the world to formalize their ESG reporting standards. A detailed report on ESG reporting is available here and enclosed below is an explanation of these pillars. Along with these pillars, the WEF report states that ESG reporting should ideally include not only the organization’s direct effects but also the effects of consumers using products or services as well as the entire supply chain.
- Pillar 1: Principles of Governance
As organisations are expected to identify and ingrain their purpose at the core of their operations, the meaning of governance is changing. But for “good governance” to be truly effective, the concepts of agency, accountability, and stewardship remain essential.
- Pillar 2: Planet
A desire to prevent environmental deterioration, especially by practising sustainable production and consumption, managing natural resources effectively, and acting quickly to combat climate change, in order to ensure that the world can continue to satisfy the requirements of today and the future.
- Pillar 3: People
A goal to eradicate poverty and hunger in all of its manifestations and to guarantee that everyone can realise their potential in conditions of equality, dignity, and health.
- Pillar 4: Prosperity
A desire to ensure that economic, social, and technical advancement take place in balance with environment and that all people can have wealthy and satisfying lives.
Impact of ESG Reporting on Board Meetings:
ESG reporting can be considered to be a key component of current corporate governance practises especially for progressive boards and with boards increasingly facing specific ESG regulations. A comprehensive framework for evaluating a board’s sustainability performance and social commitment is necessary to understand how ESG reporting affects board meetings.
ESG reporting offers board of directors with useful information on the company’s corporate governance activities, social programmes, and environmental impact of its production as well non-production functions. Board of Directors can assess their performance in crucial areas including carbon emissions, diversity and inclusion, employee welfare, supply chain management, and risk management by incorporating ESG indicators into board meetings. This makes it possible for boards to make decisions that are in line with long-term sustainability.
To increase accountability through ESG reporting, board of directors can make sure that the organisation complies with ethical standards, legal obligations, and stakeholder expectations by looking at pertinent ESG indicators. ESG subjects are also a great way to promote conversation among board members, which helps to identify potential risks, strategic opportunities, and creative solutions.
To make ESG reporting and collaboration between board of directors easier, boards and corporate secretaries can use Dess Digital Meetings – a comprehensive board meetings solution which increases the effectiveness of board meetings. With Dess’ all-in-one paperless meetings solution, it is easier for board members to communicate, collaborate, contribute, digitally approve, vote and share information. With electronic agenda management, minutes management, archives, digital signature, video conferencing integration, reports and analytics, polls and voting among other pre-meeting, during meeting and post-meeting facilities, board of directors and CXOs can leverage digital through the Dess board portal solution to optimize board collaboration. Board of Directors can experience the impact of ESG reporting and collaboration while streamlining their corporate governance processes with Dess’ board management software solution.
Goals of ESG Reporting:
Although it involves a significant investment and more importantly, a focused commitment from the company, effective ESG reporting offers a number of advantages. It gives investors, market analysts and other stakeholders the tools they need to evaluate the company’s viability as a target for funding, as a service provider or as an employment provider. As firms put more emphasis on enhancing their performance by requiring that the entities they collaborate with also adhere to high standards, the drive for sustainable business is evolving into a positive feedback loop. Having seamless and quick access to pertinent ESG data will become more and more important for company in various agreements and negotiation scenarios.
Early preparation of the framework and procedures for gathering, analysing, and reporting on ESG activities foresees the possibility that reporting will change from optional to mandatory in the upcoming years. Being proactive about this today can put organisations ahead of future compliance requirements, such as the mandates issued by the FSOC. Companies can determine where they are making progress and where work has to be done with greater accuracy as more data is collected. Board of Directors can spot developing risks earlier by analysing ESG reports, giving them more time to address them before they become a problem.
Consistent and thorough ESG reporting is a good sign of an organization’s transparency and commitment to performance improvement. As a result, it may boost reputation and credibility which affects potential and existing employees, investors, shareholders in addition to the company’s management and board of directors. While these factors should not be the primary motivation for ESG reporting, it necessary for fulfilment of the purpose of ESG that companies avoid sincerely avoid optimizing their metrics only on paper instead of their ESG actions and make sure that data is submitted without any contamination.
Impact on Corporate Social Responsibilities (CSR):
Known as a concept of management and regulation, “corporate social responsibility” encourages organizations to incorporate social and environmental considerations into their daily operations and relationships with stakeholders. CSR refers to a company’s efforts to reconcile its commitments to environmental, economic and social goals while also meeting stakeholder, shareholder and societal expectations. A corporate social responsibility committee which oversees CSR initiatives within a company is an inherent part of the board of directors for most boards around the world.
The focus of the parameters set by the WEF for ESG reporting is on quantitative accountability. Therefore, ESG reporting can be more challenging for initiatives with less obvious results or initiatives which have ambiguous results or methods of measure. While it can be challenging to quantify such components of corporate social responsibility initiatives, it is important to the cause of ESG reporting that CSR activities are included in ESG reporting, especially when related to one of the parameters of reporting.
Making ESG reporting easier:
As board of directors and corporate secretaries develop and upgrade their ESG reporting strategies, it is crucial to secure leadership within the board of directors to consistently fulfil ESG reporting. This can be through a designated board of director or a group of directors or through the Corporate Social Responsibility committee. The policies, activities and systems of ESG reporting can be cost-intensive and effort-intensive as these need to deliver accurate ESG data to the relevant institutions and individuals while maintaining compliance with deadlines and reporting criteria.
Through collaboration and efficiency, solutions for ESG by Dess Digital Meetings help organizations around the world in digital transformation of their ESG commitments into practise and action. With the world catching up, it is recommended to initiate ESP reporting at the earliest and the sooner a board implements its ESG reporting infrastructure, the more information will be available to it. Additionally, with greater data, the likelihood of non-compliance also greatly decreases while the possibilities to attaining CSR benefits continue to increase.