Environmental, social and governance (ESG) issues are top-of-mind for many corporations. A recent survey showed that 43% of shareholders want to talk to boards about ESG — more than any other topic on the board agenda. As a result, many corporations are scrambling to identify and implement ESG best practices: the set of policies and protocols that make up an effective ESG program.
At the same time, corporate boards are becoming more willing to disclose ESG-related information, like board diversity. This signals a focus on ESG reporting practices as a critical way corporations will double down on their efforts now and in the future. To help you keep up, this article will explain:
- Why practical ESG reporting matters
- The 9 ESG best practices you can start implementing now
- ESG solutions to help you lead your industry
Why is effective ESG reporting necessary?
ESG reporting is essential to risk management. Corporations face more climate risk than ever, and consumers worldwide hold companies to a higher standard, causing boards to look to ESG to adapt to this new normal. Many institutions and investors have also prioritised ESG in recent years, giving corporations a powerful financial motivation to commit to ESG.
When organisations adopt transparent ESG reporting and best practices, they:
- Proactively mitigate risk: Corporations that track their exposure to environmental and social risks can address those risks before they threaten the company’s reputation or bottom line.
- Meet changing shareholder expectations: 63% of global investors prefer funds integrating ESG, motivating companies to take those issues seriously.
- Comply with regulations: ESG regulations have increased by 155% in the last decade. While some are more prescriptive than others, ESG best practices can help corporations prove their compliance.
- Reduce costs and increase efficiencies: Cutting waste, using less electricity, and attracting diverse hires are all ESG practices. These are just a few key ways corporations can cut costs and improve performance through ESG.
The 9 ESG best practices
1. Assemble an ESG team
ESG is complex, and it’s more than implementing a recycling program or using compostable packing for your products. So, while it may be tempting to have team members double duty as ESG advocates alongside their current roles, it’s a critical ESG best practice to create a dedicated team.
This can include a sustainability consultant, a diversity consultant, a risk manager dedicated to ESG risks and more. Be sure to prioritise diversity; it’s not only essential to the “S” in ESG, but it’s also the best way to tap into the many experiences and backgrounds it takes to address ESG effectively.
2. Choose an ESG framework
Thousands of ESG regulations are on the books, but not all may be relevant to your specific ESG reporting needs. Choosing the proper framework remains an ESG best practice because it’s essential to setting your program up for success.
Organisations that create a framework themselves can too often misconstrue their ESG performance by simply disclosing their effectiveness at the priorities they’ve identified. Adhering to an accepted framework, however, shows that you’re committed to a more holistic view of ESG performance — one that’s tied as much to the world around you as it is to your objectives.
Some of the most common ESG reporting frameworks include:
- International Organization for Standardization (ISO)
- Global Reporting Initiative (GRI)
- Sustainable Development Goals (SDG)
- Sustainability Accounting Standards Board (SASB)
3. Set ESG goals
You must set ESG goals to serve as your program’s north star. These goals should be related to the framework you selected. If you selected GRI, for example, you might prioritise areas the framework already emphasises: your GHG emissions, waste attributed to your production, how safe your facilities are, etc.
This ESG best practice will help you make intentional, strategic changes that will reduce your impact on the environment and your community. It also makes it easier to disclose the results of your ESG efforts.
4. Identify metrics for your goals
Goals alone aren’t enough. That’s because your ESG goals are broad statements about what you hope to achieve. Conversely, metrics are the specific data points you’ll use to measure your progress. For example, if pay equity is your goal, a key metric could be CEO pay ratios.
As you research and select data points, metrics that meet our ESG best practices are those that are:
- Comprehensive: Consider all facets of ESG. While sustainability is top-of-mind for corporations and consumers alike, social and governance issues are still critical for your success. Pick metrics that help you measure E, S and G.
- Objective: Any metric you choose must be objectively measurable. It would be best to discuss ESG in terms of the amount of waste you create, the amount of diversity on your board and other numbers that can’t be swayed by how you want your ESG to look.
- Universal: Investors want to compare your ESG performance to other companies in your category. Creating unique metrics can make it harder to communicate your efforts, so it’s crucial to adhere to a relevant reporting standard.
5. Collect ESG data
ESG data is central to your efforts. Many corporations engage in what’s called greenwashing, which is an attempt to appear committed to ESG without taking any action. Corporations with transparent reporting and data can easily prove their efforts are genuine and contribute to meaningful, measurable impact.
It’s an ESG best practice to collect and centralise data related to your ESG metrics and translate that information into an ESG score. Your ESG score will indicate your risks and opportunities, the efficacy of your initiatives and how effectively the board is managing ESG.
6. Strategize on improvements
In ESG reporting, metrics should be actionable. If the metrics show that you have yet to meet your ESG goals, consider how you can adapt your strategy to make more progress. If you have met your goals, consider redefining that goal or setting a new one, pivoting to ESG areas you have yet to emphasise.
It’s important to focus on improvements that will meaningfully impact your business. If, for example, you ship products overseas, the ESG best practice is to create a strategy that reduces those emissions — not just the electricity usage at your company’s headquarters.
7. Create visibility around ESG performance
Investors, regulators and the board want visibility into your ESG program. For this reason, ESG reporting isn’t only about creating internal benchmarks. It’s translating those benchmarks into clear, centralised reports that prove your commitment to investors, your compliance with regulators, and the value of ESG to your board.
ESG reporting best practices state that you have a single source of truth for all reporting, that your reports offer real-time insights and that dashboards are clear and easy to interpret.
8. Monitor ESG
ESG issues rapidly evolve. Policy and industry leaders update frameworks and expectations. New ESG priorities take hold among investors. The board may ask for visibility into ESG areas they consider important for the corporation’s future.
Each of these scenarios, and more, can impact the success of your ESG program. It’s also possible that your ESG strategy won’t perform as expected. In either case, monitoring is identifying problems before they become more significant threats. It’s a best practice to consider ESG an always-on function and closely monitor regulatory, political and shareholder updates and your own ESG data to ensure your efforts don’t fall behind.
9. Utilize ESG technology
ESG may be motivated by a desire to protect people and the planet, but data heavily influences it. From emissions to waste, biodiversity to human rights, and so much more, corporations are expected to track and centralise numerous metrics and then use them to prove their continued commitment to sustainability.
Manually setting goals, tracking metrics and reporting on ESG is time-consuming. ESG technology can automate much of that process by defining key indicators, reporting on those indicators, and then centralising your data into a single source of truth. This is the best way to create an ESG program that’s actionable for the board and defensible to investors and regulators.
Lead your industry on ESG.
Modern ESG is still a relatively new function, so there’s an opportunity to lead the way on ESG best practices. Using the right solutions can signal to investors and regulators that you take ESG seriously. Those solutions can also equip your board with the clear and credible insights they need to make informed decisions about ESG.
Diligent ESG helps generate accurate sustainability reports by automating data collection and creating thorough, audit-ready reports. See how Diligent ESG can be the source of truth your organisation needs to chart a path forward on ESG.