Many companies now report their environmental, social, and governance (ESG) data. In part, they’re doing so because investors and consumers are putting more pressure on them to disclose their ESG metrics. But there are many benefits to ESG reporting: It can strengthen companies’ brands and attract consumers who value sustainability and social justice, and prove to investors that companies are addressing their climate risks and are making progress against their sustainability goals. And public companies that voluntarily report ESG information will have a head start over those that don’t once mandatory ESG disclosure regulations are passed.
Mandatory vs. voluntary ESG reporting
In some jurisdictions, ESG reporting is or soon will be mandatory for compliance purposes. In the EU, under the Corporate Sustainability Reporting Directive (CSRD) public companies will be required to report ESG data for the year ending Dec. 31, 2024. That includes non-EU companies that have subsidiaries in the EU or are listed on its markets.
The SEC has proposed a rule that would require US public companies to disclose their climate risks and carbon emissions. It’s expected to become binding this fall. Lawmakers in California and New York have also proposed regulations for ESG reporting in their states.
Many companies—including Target, Amazon, and Google—voluntarily report ESG or sustainability data. Voluntary reporting can help businesses prepare for mandatory reporting while giving investors greater transparency into their progress towards ESG goals.
The ABCs of ESG
ESG is an acronym that stands for environmental, social, and governance.
Environmental information that companies may report includes carbon emissions, use of renewable energy, pollution, use of natural resources, and waste disposal.
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Social information might include: labor practices; human rights; safety; diversity, equity, and inclusion; and relationships with various communities.
Governance information might include business ethics, risk tolerance, board elections, the makeup of boards, and whistleblower protections.
Frameworks for ESG reporting
Multiple frameworks exist that companies can use to help them report ESG data. Some of the most well-known include the Greenhouse Gas (GHG) Protocol, the Task Force on Climate-Related Financial Disclosures (TCFD) framework, the Sustainability Accounting Standards Board (SASB) framework, and the Global Reporting Initiative (GRI) standards.
ESG reporting regulations are often based on one or more of these frameworks. For instance, both the proposed SEC rule and the CSRD use the GHG protocol.
Companies that report voluntarily can choose the framework that best meets their needs. One advantage of using a framework is that it standardizes data, making it easier for investors to make comparisons between companies and for businesses to track their progress and benchmark against their peers.
First steps
As a first step towards reporting ESG data, companies can create internal teams with expertise in the areas they will need to gather data from. The team can look at peers’ ESG reports to see what types of financial and nonfinancial information they should be tracking, and choose one or more ESG frameworks to use. Then, they can determine what data they already have and what they need to collect.