Introduction
In this complex landscape of ESG (Environmental, Social, Governance) reporting, businesses are navigating the tricky waters of sustainability reporting. Whilst for most companies, these reports remain voluntary, however are becoming increasingly important to investors and stakeholders, who are placing increasing reliance on guidelines to aid sustainable initiatives, challenges, and progress.
Let's delve deeper into the maze of Questionnaires, Leveraged Information Reports, and Reporting Frameworks:
1. ESG Questionnaires: The straightforward approach
ESG questionnaires are seemingly straightforward tools, often resembling surveys, used to collect answers to a defined set of specific data regarding a company's sustainability practices.
Why Use Questionnaires?
They offer a direct method for stakeholders, like investors and rating agencies, to gauge ESG performance.
They don’t demand elaborate reports to be created; just straightforward answers to tried and tested questions.
They cover essential ESG metrics like environmental impact, social relationships, and governance structures.
The Catch?
Despite their simplicity, they are not to be underestimated and companies lacking ESG recordkeeping and measurements will duly find these challenging to collate. Known ESG questionnaire standards, like the Carbon Disclosure Project (CDP), have set comprehensive question that push companies for high quality disclosure.
2. Leveraged Information Reports: The comprehensive and sometimes brutal review
Think of Leveraged Information Reports as the expert on the outside looking in, magnifying glass in hand, to closely inspect and present their findings in an unbiased and invariably brutally honest way. Produced by ESG rating and research agencies, these reports provide an unbiased panoramic view of a company's sustainability performance using publicly available information.
How Do They Work?
These reports aggregate data from various public sources: company disclosures, external databases, and media reports.
Post aggregation and pre-publication, reports are shared with the company for their view, which may not always be presented in a favourable light.
An example is the Newsweek Green Rankings, which operates as a "reverse report", pushing companies towards first-time disclosures.
Challenges?
This could be a company’s first exposure to ESG reporting and the pill is certainly not sweet when it starts on a back foot defending against negative sustainability practices.
With the vast amount of data, discrepancies may arise, leading to questions about data quality and accuracy.
3. Reporting Frameworks: Tailored ESG Narratives
While the Questionnaires and Leveraged Information Reports focus on data collection, Reporting Frameworks guide businesses in crafting their own ESG narrative, tailored to their unique context, industry and sector. Understanding which framework is best for your company is an art form and one that requires an understanding across a range of stakeholder needs and anticipations.
Popular Frameworks:
TCFD (Task Force on Climate-Related Financial Disclosures): Mandatory for over 1,300 of the largest UK-registered firms and concentrates on the financial implications of climate change.
SASB (Sustainability Accounting Standards Board): Focuses on ESG factors' financial implications.
GRI (Global Reporting Initiative): Highlights environmental and societal contributions and governance style.
Why Opt for Frameworks?
They provide comprehensive, industry-specific guidelines to follow in the creation of their own unique report.
They allow businesses to reflect their own unique sustainability narrative, shedding light on initiatives, challenges, and aspirations.
Conclusion
In this accelerating ESG arena, a one-size-fits-all approach doesn't work as much as this would help investors make a side-by-side comparison. Whether companies opt for a questionnaire or follow an established reporting framework, the key is to choose the right tool that aligns with their goals, stakeholder and investor expectations, and industry specifics.
As we progress towards embedding sustainability, the value of authentic, transparent ESG reporting will only magnify. Companies willing to invest time, resources, and genuine effort into their ESG reporting journey stand to gain the most in the long run, both in terms of brand reputation and stakeholder trust. The world is watching, and the onus is on businesses to respond responsibly.
If you want to discuss in more detail the best reporting mechanism for your firm or need help in responding to leveraged information report, please speak to our ESG experts Zoe Keen and Vineeta Manchanda. You can also find out more in our Principles of ESG: Foundations training pack (which can also be delivered in person).
