The need for transparency and standardization in ESG is apparent, but a proliferation of frameworks means businesses have a big decision before them.
By Su Rim, Senior Manager, Assurance
A growing number of companies are reporting on their environmental, social and governance (ESG) performance data every year, as climate change efforts, social justice initiatives and corporate sustainability goals become increasingly important to consumers, investors and employees. In 2019, 90% of companies in the S&P 500 published some form of sustainability report, up from about 20% in 2011, according to a 2020 report.1 However, with fewer resources at their disposal, only about one-third of small- and mid-sized enterprises (SMEs) are currently reporting ESG data, surveys show. As the demand for ESG information continues to rise and the value of a strong ESG proposition becomes increasingly clear, it’s time for SMEs to start exploring how to implement and report on key ESG initiatives.
When it comes to developing a comprehensive ESG report, there are a wide variety of topics and metrics that may be disclosed, which can seem overwhelming. The key is to understand and assess what is important to your stakeholders and the company’s long-term objectives. According to one survey, the top three ESG topics reported by SME are: human capital management, environmental impact and risk management, and health and safety.2
- Human capital management: The most common disclosure, human capital management includes information on diversity and inclusion, minority-focused affinity groups, training and benefits, and overall employee wellness and engagement.
- Environmental impact and risk management: The second most-commonly included disclosure, with information on the company’s environmental practices and goals, such as emission reduction, renewable energy use, and sustainable sourcing and operating impact.
- Health and safety: Includes disclosure on workplace injury prevention, emergency preparedness and safety trainings.
Currently, there is no regulated set of reporting standards or standardized reporting framework that companies are required to use. As such, companies have the freedom to disclose as much or as little as they see fit, a factor which depends highly on how developed the company’s ESG reporting is. ESG disclosures range from a single paragraph on the company’s website to multiple website pages or a stand-alone ESG report.
There are several available reporting frameworks and industry-specific guidelines that companies can reference when developing disclosures. The most commonly used ones are Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and Task Force on Climate- Related Financial Disclosures (TCFD). Again, there is some flexibility here: Companies may align their reporting with one of these standards or combine elements from different sets of standards.
The key takeaway is that ESG reporting is not one-size fits all. While so many reporting options can be daunting for SMEs, companies should not wait for the regulatory dust to settle to begin identifying and communicating their ESG strategy to stakeholders. By reporting on the ESG initiatives that are aligned with the most important areas of your business, you send a signal to customers, employees, investors and the broader market that the company is positioned not only to mitigate risks but to seize opportunities that will ultimately drive long-term value, financially and otherwise.
Whether you’re looking for ways to implement ESG reporting efforts or to incorporate ESG practices into your company policies and culture, BPM can help. Get in touch with us today to make industry-leading ESG performance part of your plan for success.
1.Source: 2020 S&P 500 Flash Report (ga-institute.com)
2.Source: A Survey of Sustainability Disclosures by Small- and Mid-Cap Companies | White & Case LLP (whitecase.com)
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