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When judging businesses' performance, stakeholders pay more attention to environmental, social, and governance (ESG) reports.
When judging businesses' performance, stakeholders pay more attention to environmental, social, and governance (ESG) reports. Survey results show that over 83% of consumers think companies should be actively shaping ESG best practices. They prioritize data security and privacy, climate change, product safety, and quality, worker health and safety, and racial and gender diversity and inclusion. This means businesses should be investing in these areas.
It is imperative for businesses to take into account ESG standards which is a growing demand from consumers and regulators.
Evolving regulations mean businesses need to act fast when it comes to ESG.
Read more about the Top 10 International Sustainability Standards of 2023
Rules and disclosure standards help make sustainability issues more transparent and consistent. This reduces the risk of companies being accused of greenwashing or presenting themselves as more "green" than they are. Many companies are at different stages of incorporating ESG strategies into their reporting and overall strategies.
Companies should consider the following questions when formulating their ESG strategy:
There are various tools and frameworks to help companies formulate their ESG strategy which is in line with standards set by their respective countries. Companies must start their internal evaluations by taking into account the current status of ESG compatibility and reporting, understanding the company’s operations, and identifying relevant ESG disclosure provisions. SEC provides a comprehensive guide to US-based companies on reporting on scopes 1, 2, and 3, strong governance structures, and disclosures of climate risk in financial statements.
When it comes to ESG reporting, one of the most important aspects is to identify the right key metrics to disclose. A company’s strategy needs to reflect the company’s performance in areas such as environmental responsibilities, social contribution, governance practices, and so on. Identifying key metrics requires a comprehensive understanding of the company’s operations and practices.
This understanding can be gained by conducting a materiality assessment which allows the company to determine what information is likely to be most relevant to stakeholders and to set disclosure priorities. AI-driven models are enabling companies to evaluate their actions and the risk associated with them, allowing companies to take corrective measures toward ESG compliance.
Furthermore, companies should take into consideration the local cultures, laws, and regulations that may be relevant to their ESG reporting. This will ensure that the report reflects the company’s performance and practices in the context of the local environment.
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A company’s ESG reporting should include comprehensive goals and targets, as well as processes and governance steps to ensure the goals are being met.
The process and governance steps should include a system of checks and balances that measure a company’s progress and ensure the policy is consistently enforced.
They should include a plan for collecting and reporting data on ESG performance, as well as an internal review process to ensure accuracy and completeness.
Additionally, they should provide a framework for monitoring and evaluating progress against ESG targets and objectives. The policy should also create systems to detect challenges and violations of the policy and how to mitigate them.
Aligning with Applicable Standards and Frameworks
The first step in completing a climate disclosure request is to identify the standards and frameworks that are applicable to your organization. Different organizations will have different standards based on the industry and country they operate in.
Identifying Internal Stakeholders
Internal stakeholders could include employees, suppliers, customers, and partners. Internal stakeholders should be identified based on their expertise, resources, and capabilities. These stakeholders will help to ensure that the climate disclosure request is completed in a timely and accurate manner.
Defining Organizational and Operational Boundaries
Defining the organizational and operational boundaries ensures climate-related risks and opportunities are accurately reported. This includes identifying organizational structure, locations, and activities.
Collecting Carbon Emissions Data
Organizations should collect data on their emissions from all sources, including their own operations, supply chains, and products. Data should include direct and indirect emissions and should be collected in accordance with the applicable standards and guidelines.
Developing a Climate Strategy
The final step is concerned with a strategy regarding outlining how to reduce emissions and achieve the company’s climate goals. This strategy should include identifying potential offsets and reductions, such as renewable energy, energy efficiency, and other initiatives.
After setting up an effective ESG strategy, the next step is to establish a reporting process to ensure that investors know your climate disclosure is accurate. This process should clearly define the roles and responsibilities of the various stakeholders involved.
Technology can be a powerful tool in streamlining the reporting process. Technologies such as machine learning and artificial intelligence can be used to reduce the amount of manual review needed, thus reducing the risk of errors or omissions.
Lastly, companies can further strengthen their climate disclosure by engaging third-party assurance services. These services provide independent assurance that the disclosed data is accurate and reliable. This can provide investors with greater confidence in the data and the company’s commitment to environmental, social, and governance (ESG) practices.
According to a 2021 survey conducted by KPMG, 44% of investors now require external assurance of ESG data, up from 33% in 2020. This trend is expected to continue, with nearly two-thirds of investors expecting to require external assurance of ESG data by 2022.
Overall, completing a climate disclosure request is a complex process. Organizations should ensure that they align with applicable standards and frameworks, identify internal stakeholders, define organizational and operational boundaries, collect carbon emissions data, and develop a climate strategy, identify offsets, and reductions.
Various organizations have created AI-based models to forecast climate risk and created projections of emission reductions based on different stages of a company’s ESG strategy.
By taking these steps, organizations will be better prepared to report on their climate-related risks and opportunities.
