What is ESG Reporting? All You Need to Know

Over the years, ESG reporting has evolved from a "nice-to-have" to an essential component of corporate strategy, offering stakeholders a comprehensive view of a company's sustainability efforts and ethical practices.

As investors and consumers place increasing importance on environmental impact, social responsibility, and governance transparency, businesses are under increasing pressure to align with these values. Beyond meeting regulatory requirements, ESG reporting enhances an organisation’s reputation and strengthens its competitive position in the market. In this article, we will delve into the concept of ESG reporting and explore its significance for your organisation.

Read more to learn about

• What is ESG Reporting?
• Why does ESG Reporting Matter?
• Key ESG Reporting Standards and Frameworks
• Challenges of ESG Reporting and Practical Solutions
• Getting Started with ESG Reporting
  
  

What is ESG Reporting?

ESG reporting refers to the disclosure of information about a company’s performance and impact across three critical pillars:

• Environmental: How a company takes actions to preserve the environment
• Social: How a company manages its relationships with employees and stakeholders
• Governance: How a company handles its leadership, policies, and structures

In other words, ESG reporting aims to provide information and accountability to stakeholders (including investors, customers, employees, and regulators) about how a business manages risks and opportunities related to sustainability. 

A few examples of ESG reporting data are

• carbon emissions
• energy usage
• diversity and inclusion 
• labour practices
• board structure 
• relationship with suppliers

Such sustainability metrics are often used to evaluate a company's long-term risk and performance potential, beyond just financial returns. By highlighting ESG initiatives, companies can build trust, attract socially responsible investors, and contribute to global sustainability goals, which we will further explore in this article.

Why Does ESG Reporting Matter?

Legal and Regulatory ESG Requirements

One of the most compelling reasons for businesses to adopt ESG reporting is the growing regulatory pressure around the world. In Europe, the Corporate Sustainability Reporting Directive (CSRD) and EU Taxonomy, among others, are drastically expanding the scope of mandatory ESG disclosures for thousands of companies. 

Internationally, the International Sustainability Standards Board (ISSB) is setting a global baseline for sustainability disclosures, with many countries being encouraged to adopt its standards as part of their national reporting frameworks. 

Similarly, frameworks such as the Global Reporting Initiative (GRI) have long provided a robust structure for companies to disclose their environmental, social, and governance impacts, aligning with global stakeholder expectations and promoting sustainable decision-making. 

These initiatives highlight the increasing importance of ESG reporting as a tool for international competitiveness and responsible business practice. Failing to comply with these frameworks can result in fines, reputational damage, or even the loss of access to capital markets, depending on how they are enforced. Introducing these new reporting requirements marks a pivotal moment in corporate reporting, as sustainability reporting becomes recognised as essential alongside financial reporting. 

Stakeholders Care about Sustainability

Over time, there has been a notable market shift, with stakeholders showing growing interest in a company's commitment to sustainability. In particular, investors are using ESG metrics to evaluate companies’ long-term financial health. 

A 2021 study by EY highlights: “around 9 out of 10 investors surveyed say that non-financial performance played a pivotal role in their investment decision-making over the previous 12 months.” Among these, 72% carry out a structured review of ESG performance. Meanwhile, a study by McKinsey & Company shows that consumers are also choosing to support companies that prioritise environmental and social responsibility. 

ESG reporting is thus an excellent way to showcase a company’s commitment to sustainability and enhance the brand's reputation. By transparently communicating ESG initiatives, the company demonstrates accountability and builds trust with stakeholders, ultimately strengthening the company’s image in the marketplace.

ESG Reporting Yields Strategic Opportunities

It is crucial for companies to view ESG reporting as a strategic opportunity rather than a compliance burden. Recognising the strategic value of ESG data and its direct impact on financial performance allows businesses to not only mitigate risks but also unlock opportunities for long-term value creation and growth.

During the generation of a sustainability report and after its completion, ESG reporting can be leveraged to support long-term value creation within an organisation in four main areas: 

• Financial management,
• Operational efficiency, 
• Stakeholder relations, and 
• Strategic decision-making.
  
  

Let's look at an example where ESG strategy aligns with business strategy. A cost-reduction strategy across the business may lead to optimising resources such as electricity, water, and overall energy use. This, in turn, indirectly supports the ESG goal of reducing carbon emissions.

Further explore the strategic opportunities of ESG reporting in our dedicated article.

Key ESG Reporting Standards in the EU

The European Commission has established a set of ESG reporting standards to promote sustainable investing and advance the goals of the EU Green Deal, which aims for a climate-neutral European Union by 2050. These standards are designed to enhance transparency by providing insights into the positive and negative ESG impacts of companies, enabling informed decision-making and driving progress toward a more sustainable future.

In the EU, the ESG framework is mainly composed of these standards:

• The EU Taxonomy is a classification system that defines whether an economic activity can be considered environmentally sustainable. It provides science-based criteria to assess sustainability alignment, creating a common language that can be applied across sectors and industries. Learn more in our free EU Taxonomy e-course.
• The CSRD was designed to both reinforce and expand upon the NFRD, its predecessor, aiming to bring more coherence and uniformity to the manner in which companies disclose their ESG impacts. This extends not only to the activities of the companies themselves but also implicates their entire value chains. Learn more in our series of free CSRD e-courses.
• The Sustainable Finance Disclosure Regulation (SFDR) is designed to elevate transparency in sustainable investments. It mandates that Financial Market Participants (FMPs) and Financial Advisors (FAs) disclose information pertaining to environmental, social, and governance (ESG) activities. These disclosures are required at both entity- and product-level.
• The Corporate Sustainability Due Diligence Directive (CSDDD) aims to ensure companies operating within the EU identify, prevent, and address adverse human rights and environmental impacts throughout their value chains. It sets obligations for companies to conduct due diligence on issues such as forced labour, environmental harm, and governance risks. The CSDDD also introduces potential legal liabilities for companies that fail to comply and encourages sustainable practices across global supply chains, aligning business operations with EU sustainability goals and international standards.
  

ESG standards are closely interrelated and fit together to form a holistic sustainability framework. For instance, the CSRD, EU Taxonomy, and SFDR work together to create a coherent and efficient framework that empowers stakeholders to make more informed and responsible choices and move towards a more transparent and accountable corporate environment.

Challenges of ESG Reporting and Practical Solutions

Training Internal Workforce

Sustainability standards are made of extensive legal documents, spanning hundreds of pages. Even those familiar with ESG concepts may find it difficult to grasp and interpret the terminology specific to each framework. For example, the CSRD alone introduces new key concepts such as the European Sustainability Reporting Standards (ESRS), the Double Materiality Assessment, and limited and reasonable assurance.

Investing in proper training and expert advisory can facilitate a smoother start to compliance. It is for this reason that Greenomy launched the Greenomy Academy—a free platform to empower professionals with the knowledge and tools to navigate ESG regulations in just a few hours. Discover our bite-size ESG courses here.

Adapting to Evolving ESG Standards

The regulatory landscape is constantly evolving, making it difficult to keep pace with updates to frameworks like the CSRD and EU Taxonomy. Staying informed requires dedicated personnel or tools to monitor regulatory changes and communicate updates efficiently across the organisation.

Moreover, evolving standards can disrupt data collection systems, as future requirements may alter the type of data needed. ESG Data Libraries provide a robust solution by storing raw data directly from the source and transforming it when needed. This approach ensures compliance, regardless of regulatory changes.

Streamlining Data Collection and Management

Meeting ESG reporting standards demands collecting and harmonising thousands of data points across multiple departments and subsidiaries. Yet, many organisations rely on manual processes or outdated systems, leading to data silos and inaccuracies. Additionally, factors like Scope 3 emissions add complexity, as they involve external partners.

Collecting and consolidating ESG metrics needed to meet legal standards may require your company to set up specialised IT systems. Advanced ESG reporting solutions, such as Greenomy, are specifically designed to address high ESG data volumes and complexity with our 100+ API connectors, streamlining your data collection and management.

Managing the Cost of Compliance

Achieving ESG compliance requires significant initial investment, particularly for companies with limited resources. To effectively manage these expenses, it is important to estimate and allocate them in the upcoming financial year’s budget. Key compliance costs to consider include:

• Internal payroll
• Training & capacity building
• Data management systems
• Reporting software
• Consulting fees
• Auditing & Assurance

Despite the expense, establishing robust tools and processes from the outset is essential. Such systems not only facilitate seamless compliance but also build a solid foundation for efficient reporting in future periods, ultimately enhancing organisational resilience.

Establishing Cross-Functional Coordination

ESG reporting involves complex collaboration across departments, regions, and teams. Without proper systems, organisations often rely on manual processes or spreadsheets, resulting in multiple document versions, lost information, and inefficient workflows. Successful coordination requires a clear ESG strategy, systematic processes, and tools to track progress. 

Greenomy’s workflow management feature simplifies task management, monitors progress, and ensures seamless collaboration. This reduces administrative burdens while improving data traceability, making audits significantly easier.

Getting Started with ESG Reporting

While softwares like Excel have traditionally been key tools for reporting, its limitations are becoming evident as ESG frameworks grow more complex. Modern standards like the CSRD and EU Taxonomy introduce demanding requirements, companies are then realising the need for more advanced, specialised tools to meet these evolving standards.

Greenomy is specifically designed to help companies overcome these challenges by providing support at every step of the compliance journey. Our solution empowers internal teams through comprehensive training, enabling you to achieve reporting autonomy. Additionally, by streamlining data collection and management through seamless integrations and access to an extensive ESG data library, Greenomy helps your business to improve reporting efficiency and reduce costs. Book a demo for further details.