Non-financial aspects are becoming increasingly relevant in business decisions and therefore it has become essential to incorporate these elements as management variables. Today it is necessary to generate specific metrics, which together with the traditional variables empower decision making. This is where ESG (Environmental, Social, Governance) information has become a valuable element for business.
In this emerging field there are still many questions, so we invited our Customer Success Manager, Daniela Celedón; who has more than nine years of experience in sustainability and Corporate Social Responsibility project management; to answer the most frequently asked questions about how to start reporting on ESG.
How is ESG different from sustainablity?i
If we strictly define sustainability, it is meeting the needs of the present without compromising the ability of future generations to meet their own needs. It is a broader term that organizations commonly use to showcase their efforts in environmental protection, social advancement and economic development. ESG is a specific set of financial criteria that includes recommendations from the financial industry to better integrate environmental, social and governance issues into analysis and asset management. ESG reporting provides transparent data to enable stakeholders (including investors) to understand and evaluate company performance, just as companies use the information internally to drive decision-making.
What is driving the intense interest in ESG?
We could say that today it is stakeholders as a whole who influence the sustainability actions of organizations, and specifically investors and shareholders who are now driving the intense interest in ESG indicators. These new market demands have led to a broadening and complexification of global sustainability-related risks, as investors are increasingly considering ESG factors in their investment decisions.
Moreover, there is already evidence that companies that prioritize and focus their work and decision-making on ESG-based strategies generate superior long-term financial performance across a variety of metrics.
For a long time, it was believed that investing in sustainability meant sacrificing financial performance; however, ESG has actually proven this thinking to be incorrect. It is becoming increasingly clear that sustainability is not part of the business, but the business itself, so it must be at the heart of an organization's development strategy.
Why are there so many reporting formats?
As sustainability has expanded to address more and more issues, so has the desire for more information on these issues. Moreover, with each stakeholder group seeking more or different information, we have seen new disclosure frameworks and types of sustainability reports emerge in order to best meet those needs. However, this variety of disclosure frameworks (GRI, SASB, CDP, etc.) and types of reports, which in turn have different requirements, makes it time consuming and difficult for companies to report adequately, and often confuses stakeholders trying to figure out what is really important to them. The good news is that there is a growing consensus that there should be a globally adopted and recognized approach that allows for comparable, consistent and comprehensive ESG reporting.
Are there ways to be more efficient when it comes to ESG reporting?
Putting ourselves in the scenario of a company that has a clear sustainability strategy and its key or material ESG indicators, having a single, unified platform containing all of its environmental, social, economic and governance data can be very beneficial for ESG reporting. Having this data in one place allows you to enter it once and then generate accurate reports for a variety of purposes, including voluntary ESG reporting and mandatory government reporting.
For some industries such as utilities, oil and gas, manufacturing and mining, for example, there are strict environmental reporting requirements regarding air emissions, water effluents and chemical releases, in addition to voluntary ESG disclosures.
If ESG disclosures are managed through siloed processes, the likelihood of inconsistencies between reports increases and the all-important traceability needed to generate good sustainability reporting or ESG indicators is lost. On the other hand, having a platform to centralize the entry of information, make the entry during the year, be able to review and correct possible deviations and, above all, keep the traceability of the data, would allow companies to be more efficient, comply with their stakeholders and generate significant time savings.
Where should I start?
If your business does not yet report on its economic, social and environmental issues and you are interested in letting your stakeholders know the contribution of your company in different areas, we invite you to learn how to make sustainability reports in four steps.