With increasing public pressure and regulatory requirements, more and more companies will face the challenge of drafting an ESG (environmental, social and governance) report for the first time.
As a result of the European Green Deal — a commitment to make Europe a climate-neutral and sustainable continent by 2050 — sustainability reporting requirements for EU companies will be tightened in the near future.
Despite the rising prevalence of ESG issues on the agenda of businesses and investors, there is still considerable confusion around standard requirements and ESG information disclosure.
To ensure your first ESG report yields good results, be aware of these 5 avoidable mistakes:
1. Underestimating the time and effort required for data collection
Data collection is a time-consuming process that requires a holistic view of all company activities. Many different departments need to be involved in this process as ESG issues affect your entire company.
The time needed for coordination and cooperation across relevant departments should not be underestimated.
Moreover, it is crucial to ensure that the disclosed information tracks the right metrics and thus displays the right ESG KPIs. For this reason, you should include ESG experts that confirm the validity of the data, which may take additional time.
2. Not relying on a recognized sustainability reporting standard
Using a recognized sustainability reporting standard or framework is particularly important with regard to three factors:
- Clarity: reporting standards aim to provide your stakeholders with the clearest possible picture of how your company deals with ESG issues. Stakeholders can thus quickly and easily find the information they are looking for in your ESG report.
- Comparability: Sustainability reporting standards also enable investors to compare investment options due to a standardized disclosure of ESG data. A clear presentation allows investors to easily assess which investment choice is appropriate for achieving a green portfolio - without having to trawl through a range of disparate reports.
- Self-control: Reporting in compliance with reporting standards can also result in content that your company can use to monitor their ESG performance over time.
3. Being overwhelmed by the huge mass of ESG standards
ESRS, GRI, GHGP, IFRS S – the amount of sustainability reporting standards and frameworks is huge. Therefore, at first glance, picking the right one can seem quite challenging.
The adopted standard should best meet your organization's needs in terms of ESG reporting and fit your company's characteristics. Selecting the most appropriate framework depends
- on the target audience: Is the report directed at your investors, auditors, employees, governments, and/or creditors?
- on the purpose of the ESG report: Does it serve as a basis for financial decisions? Does it aim to communicate your sustainability commitment or to ensure compliance?
- on the scope of your organization: Are you a national or international organization?
|Get an overview of all relevant ESG standards, regulations, guidelines, and certifications in our sustainability reporting landscape.|
4. Failing to prioritize material ESG topics
ESG issues should be ranked and prioritized in order to make your report concise and meaningful. Reporting on too many ESG topics can restrict the informative value and comprehensibility of the report.
The materiality assessment allows determining the most material ESG issues of your company and your industry. For instance, within a materiality assessment in the GRI, you examine which ESG factors could possibly have a relevant impact on your company’s environment and stakeholders.
It is advisable to include your stakeholders' opinions such as customers, investors, employees, and civil society in the process of identifying your most material ESG topics. Stakeholders’ insights may reveal priorities that business leaders could possibly not be aware of.
Business assessment and stakeholder assessment can then be merged into a materiality matrix. The x-axis shows the priorities of the company and the y-axis the priorities of the stakeholders. Issues in the upper right corner of the matrix are the most relevant ones for both the company and your stakeholders.
5. Not determining ESG goals
If corporate sustainability should lead to a competitive edge, your business should not be satisfied with merely describing the status quo. Instead, your company needs to define specific ESG goals as well as concrete actions, in order to achieve those targets. The goals should be reasonable, and the progress should be tracked on a regular basis.
It is essential to understand your current performance while benchmarking your performance against the performance of your competitors, exploring technological opportunities, and reaching out to your key stakeholders.
It is also important to set both qualitative (e.g., focusing company culture on ESG) and quantitative goals (e.g., sourcing 100% energy from renewable sources). Qualitative targets are often more fundamental, while quantitative targets are easier to measure.
The ESG goals need to be embedded into your business strategy to maximize their impact. In this way, better ESG performance could automatically contribute to better overall performance and green profit
To sum up, creating your very first ESG report can be quite challenging. However, rather than considering ESG reporting as a burden, let us view it as an opportunity. An opportunity to strengthen your customer relationship, distinguish yourself from your competitors, increase the trust of your investors and discover potential for optimization. Keep in mind that you should build a governance structure and culture focused on ESG in order to make your ESG efforts truly effective. Because reporting metrics are the last step in your company’s ESG journey, not the first.
If you are aware of the necessary time and effort, align your report to a recognized reporting standard, prioritize material ESG topics, and determine your ESG goals, you will be on the right track.
Need help kicking off your ESG reporting?
Let us help you to ensure that your first ESG report will be a great success. Envoria is an all-on-one ESG reporting software making your sustainability reporting easy and efficient while covering all relevant ESG frameworks. Our ESG and software experts are ready to support you.