What is ESG?
ESG stands for Environmental, Social, and Governance factors. ESG disclosure reports are required for publicly traded companies, however, there is an increasing interest from environmentally and socially conscious consumers and investors for organizations to share such data. With upcoming government regulations, many organizations are struggling with how to get started.
If you are a newcomer to ESG, you are not alone, use this as a simple guide to get started.
A common misconception is that implementing ESG involves performance and revenue sacrifice. On the contrary, research from the Global Association of Risk Professionals shows that ESG data is critical for the identification and mitigation of major business risks including extreme weather events, water crises, cyber-attacks, credibility loss, and data fraud. According to Nasdaq, organizations that incorporate ESG into their planning perform better over the long term.
ESG isn't about “Doing the right thing”, its main aim is the identification of opportunities and risk mitigation.
ESG surveys can be used to show compliance with government regulations such as the Uyghur Forced Labor Prevention Act, The Clean Air Act, The Clean Water Act, Fair Labor Standards Act, just to name a few.
Four steps to get started on your journey
1. Identify the project lead
Get management buy-in and identify an ESG champion. ESG is a multi-departmental effort, so you will need cooperation from all facets of your organization. With the help of software, you can start with a single-person team.
2. Determine Most Material Topics
Materiality refers to financial elements that are fundamental to the long-term success of your organization and can be sector specific. Refer to the ESG materiality cheat sheet above.
3. Identify tools to collect and analyze data
There are numerous software tools that aim to streamline the collection and analysis of ESG data. These tools vary greatly from their depth of coverage to the power of their analytics. Some companies have well-researched templates that can get you started with minimal effort.
4. Understand ESG reporting and disclosures
ESG reports are disclosures of data to employees, investors, and other stakeholders of your organization. They are a snapshot of the organization’s risks, impacts, resiliency, and opportunities related to ESG.
Here is the 2021 disclosure report by United Airlines Holdings.
Challenges
The biggest huddle for beginners is finding affordable and appropriate tools to collect and analyze data that covers all material factors.
ESG reporting standards and frameworks vary a lot. The three most popular ESG standards and frameworks include Global Reporting Initiative (GRI) Standards, Task Force on Climate-related Financial Disclosures (TCFD), and SASB Standards.
Your report will depend on what is material to your industry, your organization’s strategy and focus, reporting requirements, and your intended audience.
Since agencies use different formulae to compute scores, it is difficult to compare scores across different sectors. The U.S. Securities and Exchange Commission (SEC) is in the process of streamlining ESG reporting and disclosures.
At Cloudsyte, we offer free consultations for organizations that are starting their ESG journey, pointing you to the best strategies to collect, analyze and report data. Our templates are updated constantly to capture all important aspects of ESG and compliance factors.
References.
ESG Reporting - PWC Blog.
ESG Materiality Identification - Wellington Management Blog.
ESG Reporting Standards & Frameworks - Forvs blog.