Are you confused about ESG metrics? You’re not alone. The number of different standards and frameworks for ESG reporting across the globe mean that it’s still a wild west for any business trying to figure out what and how to measure their ESG impact.
Confusion further reigns when you consider that reporting is still not mandatory in every country, although this is due to change from this year for all UK private companies and limited liability partnerships, and potentially in the near future for U.S. companies if the Securities and Exchange Commission’s (SEC) proposed rule changes are approved.
Despite a lack of universal concrete obligations, reporting is important for any business wanting to track how they’re performing against their ESG goals. Especially when you consider that shareholders and other stakeholders increasingly demand accountable transparency to provide key insights for operational imperatives such as reputation management and talent attraction.
For the latest blog in our Down to Earth series, I discuss how – without clear, mandatory guidance on what and how businesses should be reporting on ESG – business leaders can put in place metrics that will help them achieve their goals.
Find the overlap
Given the lack of one universally agreed framework, there is a lot of overlap between the ones that do exist. My advice to business leaders is to get to know the categories and unique data points in the frameworks that are specific to your industry and look for focus areas of overlap.
For example, within the technology industry, VMware is typically categorised as software and IT infrastructure across multiple frameworks[i], which places extra emphasis on cybersecurity, data privacy (customers and employees), Diversity, Equity and Inclusion (DEI) data, intellectual property protection, how to manage risks in a changing climate (including rising greenhouse gas emissions) and what we need to anticipate to make ourselves more sustainable and resilient. While every company should disclose a variety of ESG metrics as suggested by leading frameworks, the crucial focus areas specific to your industry are a good starting point when building your ESG reporting muscle.
Get your timing and audiences right
While there is no definitive guideline on the cadence of reporting, current best practice recommendations suggest internal reporting to the CEO, executive team and Board of Directors on a quarterly basis and an external ESG report for other stakeholders annually. Key audiences to keep in mind for external reporting include shareholders, employees, partners, suppliers, and community stakeholders. Your internal and external reporting should be treated as an opportunity to inform and engage, as well as to further operationalise ESG practices throughout your organisation.
Although best practices on reporting guidelines are in flux, we are already seeing proposed mandatory regulations that are putting specific dates in the calendar for reporting, often in line with traditional financial disclosure submissions. This trend of aligning ESG reporting with traditional financial reporting is often called “integrated ESG reporting”, and it encourages businesses to mature their internal processes in advance of upcoming regulations. In the UK, reporting of climate-related risks and opportunities became mandatory for the largest UK companies from 6 April 2022 and we’ve had mandatory gender pay gap reporting since 2017.
Transparency is key
Transparency is rewarded when it comes to ESG reporting. With ESG Raters and Rankers (third-party organisations that score businesses on their ESG performance based on either publicly available data or surveys filled out by the business), the more transparent you are the higher the score awarded.
ESG Raters and Rankers are mostly used by investors to help benchmark performance between companies, and they can also make or break whether a company can be included in certain indices on the stock market. For example, VMware earned placement on the Dow Jones Sustainability indices (DJSI) due to being recognised for our high ESG scores judged by S&P, which manages DJSI. Raters and Rankers can also help companies reflect on their own performance and identify opportunities for improvement.
Of course, transparency can be uncomfortable, particularly when there are no universal mandatory reporting guidelines to adhere to. However, transparency is useful as it can reveal both successes and areas to further develop and mature. Showing transparent progress even if you’re struggling to achieve your goals is encouraged and rewarded, so long as you’re showing that you have a plan. After all, ESG is a journey, and reporting is one step among many along the way.
Prepare for future reporting now
While we wait for mandatory reporting to be regulated and set in stone, the best thing we can do as business leaders is put in place robust voluntary reporting now. Businesses that ensure their reporting follows best practice even before it becomes mandatory, will be one step ahead and remain set up for the future.
Do your research, find those overlaps, talk to your peers and don’t be afraid to show your successes and failures along the way. Put the work in now and you’ll be far ahead of the competition.
[i] VMware’s 2022 ESG Report was prepared with consideration of ESG data frameworks and standards including the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Greenhouse Gas Protocol (GHG Protocol), Principles of the United Nations Global Compact, United Nations Sustainable Development Goals (UN SDGs) and Task Force on Climate-related Financial Disclosures (TCFD).