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ESG Reporting 101: What You Need To Know

In this guide

If you're reading this guide, you've probably felt the public's demands for more environmental, social, and governance (ESG) reporting. You might be wondering what that means for you, your organization, and changes to your reporting. Instead of treating ESG reporting as a regulatory requirement or "nice to have," you have an opportunity to tell your organization's ESG story with data, build a brand reputation, and provide what investors need to make informed decisions.

What is ESG reporting?

ESG reporting is all about disclosing information covering an organization's operations and risks in three areas: environmental stewardship, social responsibility, and corporate governance. Consumers look to ESG reports to figure out if their dollars are supporting a company whose values align with theirs. Meanwhile, investors are looking for both qualitative and quantitative information to help them screen investment opportunities according to the ESG factors below.

Environmental

How are organizations using energy and managing their environmental impacts as stewards of the planet? Examples: carbon emissions, climate change effects, pollution, waste disposal, renewable energy, resource depletion

Social

How are organizations fostering people and culture, and what kind of impact does that have on the community? Examples: supply chain, discrimination, political contributions, diversity, human rights, community relations

Governance

How are organizations directed and controlled, and how are leaders held accountable? Examples: executive compensation, shareholders' rights, takeover defense, staggered boards, independent directors, board elections

ESG Scores

You may have seen companies publish ESG scores from organizations such as Bloomberg, S&P Dow Jones Indices (S&P DJI), or others. Ratings measure the degree to which a company's economic value is at risk due to ESG factors and therefore whether a company is investable. Companies that are willing to more thoroughly report ESG performance than others tend to score higher. A lack of ESG reporting can hurt an organization's ESG score.

The global issuance of bonds for environmental, social, and governance goals in 2021 was on pace to hit $1 trillion for the first time ever, more than double what was sold in all of 2020.

- Bloomberg 2021

There is a demand for ESG data investors can trust.

The demand for ESG data.

Moral Beliefs

More than half of adults want to know their moral beliefs align with a company before investing, according to a Workiva survey.*

Transparency

More than half (64%) agree that ordinary investors should put pressures on companies to be more transparent.

Trust

A majority (68%) shared they want data they can trust.

*Workiva commissioned a survey of 1,000 adults in the United States, United Kingdom, Germany, and France in the spring of 2021.

Sustainability initiatives at corporations appear to drive better financial performance due to mediating factors such as improved risk management and more innovation.

- ESG and Financial Performance, NYU Stern Center for Sustainable Business and Rockefeller Asset Management, 2021

Strong ESG strategies are linked to better outcomes.

Better Performance

Studies indicate that managing for a low carbon future improves financial performance, a report by NYU Stern Center for Sustainable Business and Rockefeller Asset Management found.

Sunny Sentiments

Sentiment scores, which indicate the overall tone of an earnings call, tended to be higher for companies that discussed ESG factors in Q1 2020 and Q1 2021 than for those who didn't talk about ESG strategy and goals, Nasdaq said in a report that looked at Q1 2020 and 2021 earnings.

Steady As She Goes

Companies that discussed ESG topics the most in earnings releases were less volatile in the 30 days afterward, the Nasdaq report found.

Plenty of Upside

A strong ESG proposition can create value by driving growth, cutting costs, reducing legal and regulatory headaches, boosting productivity, and helping to optimize your investments, McKinsey & Company says.

Is ESG reporting mandatory?

Well...in the United States, the Securities and Exchange Commission provided guidance in 2010 that said companies might have to disclose risks and opportunities related to climate change. The SEC said in 2021 that it would propose amendments to enhance those disclosures. We'll be watching.

ESG reporting across regions.

Europe

The European Union's Sustainable Finance Disclosure Regulation (SFDR), which applies to financial market participants and advisors, aims to steer capital toward sustainable investments through mandated ESG reporting. The European Commission also has proposed the Corporate Sustainability Reporting Directive (CSRD) to require even unlisted companies to report how sustainability issues affect their businesses, as well as how their businesses affect people and the environment.

Asia

Stock exchanges in Singapore and Thailand require ESG disclosures, the Asian Development Bank Institute notes.

United States

While the SEC is making its own moves on climate-related regulations, Congress showed with H.R. 1187 in 2021 that they're not afraid to step in and propose what they think ESG disclosures should look like.

What major companies are doing.

A number of ESG disclosure frameworks exist to help companies determine what to report and what to measure. A single company can use multiple frameworks. For example, according to its sustainability report, Microsoft supports the United Nations' Sustainable Development Goals (SDGs), informs its CSR reporting using the Global Reporting Initiative (GRI) Sustainability Reporting Standards, and adapted frameworks of the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). 3M notes it also participates in the United Nations Global Compact (UNGC). The Coca-Cola Company says its report also aligns with the United Nations Guiding Principles Reporting Framework (UNGPRF).

Microsoft

MSCI ESG Rating: AAA

Frameworks used: SASB, TCFD, GRI, SDGs

3M

MSCI ESG Rating: AAA

Frameworks used: SASB, GRI, United Nations Global Compact (UNGC), TCFD, SDGs

The Coca-Cola Company

MSCI ESG Rating: AA

Frameworks used: SASB, GRI, TCFD, SDGs, UNGC, UNGPRF

American Express

MSCI ESG Rating: AA

Frameworks used: SASB, GRI, TCFD

Disclaimer: All trademarks are property of their respective owners and are used for identification purposes only.

How can I start reporting on ESG?

Identify stakeholders, and build your team

Once you have determined the internal and external stakeholders who would be interested in reading your ESG reports, it's time to tap into your company network. You will need a team of self-motivated individuals who are good learners to stand up your ESG program. Build a diverse, cross-functional team with expertise in different areas, which could include finance, human resources, or risk.

Research industry leaders' ESG reports

Download peers' ESG reports to determine what data they're disclosing and which frameworks they're using. Based on this research, engage stakeholders to brainstorm which metrics are important to your organization, identify what data you're already collecting, and determine the data you still need.

Build your ESG roadmap

Engage stakeholders to refine the metrics and values that matter to your organization. Then map the journey to achieving your goals for ESG reporting and ESG performance overall.

Be ready for what's next.

Working across departments to compile, analyze, and report financial and non-financial data for ESG disclosures isn't always easy.

Here's what can help:

Collecting ESG data.

Aggregating data from both systems and people? Across multiple places? We’ve got you covered—automate the collection of data and connect directly to your source systems.

Reporting data you can trust.

Sharing your ESG data with critical stakeholders? Breathe easy. Workiva easily takes your integrated reporting and connects to all your ESG reports and presentations to ensure your story is the same, every time.

Keeping up with changing frameworks.

Whether you use globally recognized ESG frameworks or your own, no problem! With Workiva’s ESG platform, you can do both.

Being ready for anything

Work in the same audit-ready environment as financial reporting teams to ensure your ESG reports stand up to the highest level of scrutiny. Collect, manage, and report data with complete audit trails, data lineage, and transparency.

Explore the next step in building your vision for modern ESG reporting.

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