ESG reporting and why is it important?
What is ESG reporting and why is it important? You might have seen the term ESG popping up in your business meetings or when looking into sustainable companies. We will cover everything concerning Environmental, Social and Governance reports and why they are becoming increasingly important to your employees, customers, suppliers, and investors.
In this article, we will cover:
- What does ESG stand for?
- Why is ESG reporting important for sustainability?
- ESG reporting Standards & Criteria
- Is Environmental, Social and Governance Reporting Mandatory?
- What is ESG Investing?
- ESG & Sustainability
- ESG report pdf example
What does ESG mean?
What does ESG stand for? ESG stands for Environmental, Social and Governance. People can use Environmental, Social and Governance reports to help build businesses that benefit everyone.
- E is for Environmental data, which is information about the company’s effects on climate change, greenhouse gas emissions, biodiversity loss, deforestation, reforestation, pollution, energy efficiency and water management.
- S is for Social data on health and safety, facilities and their condition, diversity, equality, inclusion, and customer satisfaction.
- G is for Governance and data on a company’s Governance.
Environmental
The effects of climate change are becoming apparent and can have massive impacts on a business’s ability to function. As climate change could impact a company’s ability to make money, it is something investors are considering. Two of the main areas taken into consideration are:
- Climate change
- Environmental sustainability
Social
Humans are a valuable asset because a company or business is only as strong as its people. Therefore, Environmental, Social and Governance reports consider the social impact of a business, and for a good reason, the broader the talent pool, the more likely you will find the right person for the job. ESG reports information on the diversity of:
- The Workforce
- A company’s human rights record
- Consumer protection and rights
- Animal welfare
Corporate Governance
When carrying out an Environmental, Social and Governance report, Governance is the final and most crucial section, as it covers how a company’s CEOs, directors and other executives behave. A report will cover several areas when looking into a business’s corporate Governance.
These areas include:
- Diversity of management structure
- Management and employee relations
- Bonuses paid to executives
- Equality of pay
Why is ESG reporting important for sustainability?
Although companies use Environmental, Social and Governance information to determine financial sustainability of a company, the UN has pressured ESG-defined businesses to follow the 2030 Agenda and its 17 Sustainable Development Goals, which are targets required to keep the planet from heating more than 2 degrees by 2030.
ESG reporting Standards & Criteria
Currently, most companies with ESG reports create their own set of standards & criteria. They do this because there are no industry-wide standards or governing bodies available to monitor Environmental, Social and Governance reporting. The ESG documentation is a framework that can be used to measure a company’s sustainability in a business sense.
The term ESG was first used in a 2004 report titled “Who Cares Wins“, followed by the Freshfields Report in October 2005, and it has developed into a global anomaly worth more than $30 trillion in assets since then!
More and more companies are appearing who can provide ESG services. A quick Google search pulls up quite a few. Without an industry standard, it is hard to differentiate which company offers the most credible ESG reporting.
The reputable and well-established news magazine ‘Newsweek’ has recently used the ESG reporting company ‘Statista’ to evaluate which companies are the most responsible.
Is ESG Reporting Mandatory?
No, ESG reporting is not mandatory. However, it is becoming more valuable to businesses as a forecasting and assessment tool. A recent panel showed that Generation Z showed up to 66% interest in Environmental, Social and Governance reports and responsible investing.
However, Environmental, Social and Governance reporting is hard to rationalise financially as there currently needs to be measurable value in a company with a good Environmental, Social and Governance rating. There are also accusations that an ‘ESG report’ is another way to greenwash a business for the current ecologically conscious consumer market.
What is ESG Investing?
When companies refer to ‘ESG investing’, they want to invest in companies with good ESG reports. A business like a Bank will use an ESG report to determine a company’s sustainability and whether or not they should invest in it. An ESG report’s bonus is that it offers collated data on essential areas of business, Environmental, Social and Governance. Again though, there is no measurable monetary value to having an Environmental, Social and Governance report.
ESG & Sustainability
So, what do ESG reports have to do with a company being sustainable? The United Nations have been pushing to combine the ESG framework with the 17 goals and 169 targets for sustainable development. Combining the two initiatives would ensure that ecological sustainability, social responsibility and responsible Governance are a part of the business strategy.
ESG report pdf example
If you need a sample of an ESG report, you can download this Environmental, Social and Governance report pdf example. It is from JP Morgan, which is a leader in financial services. JP Morgan’s ESG report is one of the best examples as it lays out its commitments in all three environmental, social and Governance areas.
Download the JP Morgan ESG Report pdf.
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