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How ESG Reporting Creates a Roadmap to Superior ESG Performance

Lower CO2 emissions and carbon footprint to limit global warming

In the Environmental, Social, and Governance (ESG) field, reporting obligations driven by regulations are a significant pain point for many businesses.

The European Union’s Corporate Sustainability Reporting Directive (CSRD) outlines reporting obligations that take effect in 2025 (for the financial year starting on or after January 1, 2024).

In the United States, the Securities and Exchange Commission’s proposed rule on climate-based disclosures is still not finalized, but California recently passed SB 253 (the Climate Corporate Data Accountability Act), which will apply to all public and private U.S. firms doing business in the state and with revenues higher than $1 billion, and SB 261 (the Climate-Related Financial Risk Act), which will apply to U.S. firms doing business in the state and with revenues higher than $500 million. California governor Gavin Newson signed the bill, but has also requested small changes.

Add a few other examples from other countries, and it’s clear an era of mandatory ESG reporting is upon us. ESG is about compliance also, not just about brand reputation.

The ESG report is both the end and the beginning

The process of producing an ESG report includes many steps. Organizations should start by establishing an ESG data management strategy by standardizing data sets across the entire enterprise. They must also determine the fiscal year for when their first report is due, which will determine for them the regulatory deadline to follow. And finally, they must identify the material aspects to report on.

The end result of this process is an ESG report submitted to relevant regulatory authorities in the specified format and based on accepted standards. Voluntary ESG reports can also be published.

But what happens next is the most important thing.

Smart organizations use the results of their ESG report to establish a roadmap that enables a cycle of continuous improvement leading to superior ESG performance. Their ESG journey does not end with the publication of the report.

Steps in your journey to ESG excellence

Your ESG report is more than a document highlighting progress for the benefit of stakeholders or to comply with regulations. It also provides a snapshot of where you are now. Leading organizations use the information contained in their reports to improve ESG performance by following these steps:

1) Identify opportunities for improvement

Classify all metrics that are material and part of your ESG report into one of the following three categories: 1) Must improve; 2) Should improve; 3) Satisfactory. The goal is to prioritize areas requiring attention, investment, and effort. Items in the first category should receive the highest priority, while those in the second category should be addressed only on an opportunistic basis and be considered “low-hanging fruits.”

2) Set objectives

After prioritizing ESG areas to improve, it’s time to set objectives. Based on the completeness of your ESG report, you will already have baselines for various metrics to improve upon. Make your objectives realistic. Determine whether you prefer to achieve similar levels of improvement across prioritized ESG areas, or significant improvements across a few key areas, and modest ones for others. Your choices should be guided by the materiality and importance of the ESG topics to your stakeholders.

3) Launch action plans

Actions speak louder than words. For each of your ESG improvement targets, create and launch action plans that include clear assignments of tasks and definitions of deliverables. This is where a specialized action plans software application can help. Rather than using spreadsheets and manual processes, take advantage of software’s automated workflows, automatic notifications and alerts, and dashboards with status updates and overdue tasks.

4) Track progress

As you take required steps to improve key ESG metrics you have prioritized, perform monthly or quarterly checks to track progress. Verify whether you’re on track to meet your objectives then make necessary adjustments. Consider setting interim goals as a way to measure progress. Also, remember to do change management. If there’s a change, evaluate whether it may impact your goals. For example, if an existing supplier goes out of business and you’re forced to rely on another one, would that impact your reduction targets for Scope 3 carbon emissions?

Your ESG software must do more than reporting

Can you easily use your ESG report to create a roadmap for ESG performance improvement? Perhaps not if your organization uses Excel spreadsheets or software that focuses only on the reporting aspect of ESG.

But with a comprehensive and complete ESG software solution, you have a platform for ESG data management acting as the single source of truth. Data is collected only once, and can then be used for ESG reporting against different standards (ESRS, GRI, SASB, CDP, etc.).

Such a software platform ensures your ESG data is auditable, accurate, and actionable. You set objectives for individual metrics, launch action plans, and track progress.

When evaluating ESG software, look at the big picture and take into consideration ESG software solutions that include capabilities for ESG management and performance, in addition to reporting. You can accelerate your software selection process by downloading your complimentary copy of the Green Quadrant for ESG Reporting and Data Management Softwarefromindependent research firm Verdantix.

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