Frequently Asked Questions
We answer a few questions here, if you have specific questions, please do get in touch. We’d be happy to help you.
Sustainability reporting is the disclosure and communication of environmental, social, and governance (ESG) goals—as well as a company’s progress towards them.
A sustainability report is a report published by a company or organization about the economic, environmental and social impacts caused by its everyday activities.
A sustainability report is the key platform for communicating sustainability performance and impacts – whether positive or negative.
Since April 2013, all large companies are required to report on how they integrate sustainability into their business strategies. Companies that issue reports that comply with UN Global Compact or GRI standards are exempt from this requirement.
Sustainability is a blanket term—a catch-all for any company’s efforts to “do better.” ESG, on the other hand, spotlights three specific pillars that are crucial to today’s business managers and investors.
ESG — or “environmental, social, governance” — has become the preferred term for capital markets. That type of data is often used to identify superior risk-adjusted returns. But ESG has recently become a familiar acronym throughout many industries.
“Sustainability” can mean just about anything under the broad rubric of “doing well by doing good.” This makes it a convenient yet inaccurate substitute for other related but distinct terms like “corporate responsibility,” “triple bottom line,” and the old standby, “green.”
McKinsey wrote a clarifying article on how ESG can bring value to a company and suggests there are five links to value creation.
- Top-line Growth
- Cost reductions
- Reduced regulatory and legal interventions
- Employee productivity uplift
- Investment and asset optimization
You can read the article here: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/five-ways-that-esg-creates-value
ESG reporting is the disclosure of data explaining a business’s impact and added value in three areas: environment, social and corporate governance.
Just as a company would produce financial reports, ESG or sustainability reports provide a summary of quantitative and qualitative disclosures supported by analysis of performance across these ESG factors.
Examples of these factors:
- Environment: Climate change and carbon emissions, air and water quality, biodiversity, deforestation, energy efficiency, waste management
- Social: Customer satisfaction, data protection and privacy, gender and diversity, employee engagement, community relations, human rights, labor standards
- Governance: Board composition, audit committee structure, bribery and corruption, executive compensation, lobbying, political contributions, whistleblower programs
Many companies chose to integrate their ESG reporting in their annual reporting to demonstrate how sustainability is embedded in their business.
Investors especially, want more financially material and higher quality information to inform their decisions.
The UN Principles for Responsible Investment (PRI) is an international organization that works to promote the incorporation of environmental, social, and corporate governance factors (ESG) into investment decision-making.
PRI reporting is the largest global reporting project on responsible investment. It was developed with investors, for investors. Signatories are required to report on their responsible investment activities annually.
SASB (Sustainability Accounting Standards Board) is a Non-profit organization.
SASB Standards enable businesses around the world to identify, manage and communicate financially-material sustainability information to their investors.
SASB connects businesses and investors on the financial impacts of sustainability. SASB Standards identify the subset of ESG issues most relevant to financial performance in each of 77 industries.
SASBwww.sasb.org
The Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) is a market-driven initiative, set up to develop a set of recommendations for voluntary and consistent climate-related financial risk disclosures in mainstream filings.
The TCFD recommendations are designed to solicit consistent, decision-useful, forward-looking information on the material financial impacts of climate-related risks and opportunities, including those related to the global transition to a lower-carbon economy.
SCM (Stakeholder Capitalism Metrics) are a set of environmental, social and governance (ESG) metrics and disclosures released by the World Economic Forum (WEF) and its International Business Council (IBC).
The SCM strengthens the ability of companies and investors to benchmark progress on sustainability matters.
Materiality assessment is the process of identifying, refining, and assessing numerous potential environmental, social and governance issues that could affect your business, and/or your stakeholders, and condensing them into a short-list of topics that inform company strategy, targets, and reporting.
A materiality matrix helps visualize the findings of a materiality assessment. Many variations have emerged to represent what’s important for reporting and what’s important for strategy.
SASB’s Materiality Map® identifies sustainability issues that are likely to affect the financial condition or operating performance of companies within an industry.
How do auditors determine materiality? To establish a level of materiality, auditors rely on rules of thumb and professional judgment. They also consider the amount and type of misstatement. The materiality threshold is typically stated as a general percentage of a specific financial statement line item.
Financially material ESG issues are those that are deeply embedded within a company’s business operations. These issues, if not managed and overseen appropriately, can negatively impact company performance. Unfortunately, it can often be difficult to determine which ESG issues are financially material to the business.
Comprised of three central building blocks: corporate governance, material ESG issues, and idiosyncratic issues (black swans). The ESG Risk Ratings are categorized across five risk levels: negligible, low, medium, high and severe. Ratings scale is from 0-100, with 100 being the most severe.
To start reporting your ESG data you need to:
- Identify the range of stakeholders impacted by and impacting your company;
- Map your material sustainability issues inside and outside your business to relevant; stakeholder groups, e.g., GHG emissions, supply chain human rights, gender diversity;
The focus of an ESG report should be the company’s environmental, social and governance-related risks and opportunities which are connected to the risks and opportunities of company-wide value creation.
Transparently share your short and long-term plans to improve in your ESG focus issues, whether that be decreasing the company’s carbon footprint, attracting diverse talent, or improving labor practices.
The actions in your plan must be specific, practical and transparent. Since these reports will be read by investors, customers, employees, NGOs and prospects, the messaging in your report should mirror your target audience’s focus.
Reporting ESG information with your financial results can benefit your company by presenting a sustainability story that is aligned to business strategy and financial performance.