ESG reporting is often used interchangeably with sustainability reporting, or impact reporting. Essentially they are the same concept.

ESG stands for Environmental, Social and Governance.

Impact reporting is a representation of a company’s performance in managing its environmental impact such as waste, water, energy management, social impact such as employee diversity, supply chain management; and how the governance structure of a company has impacted the quality of its decisions during the year.

The reports can be integrated within a company’s annual statements, or become a standalone set of reports. There are internationally accepted ways to measure these impacts, very similar to financial accounting.

These internationally accepted measurements are then included in a set of disclosure standards which forms the framework of what is included in a report.

ESG reporting, sustainability reporting, or impact reporting might be mandatory in many places for large or multinational corporations, but that doesn’t exclude the benefits that they can bring to small and medium sized enterprises.

These benefits include having a holistic overview of an SME’s business to facilitate better decision making, communication strategies, and attract potential capital.

One important element is that impact reporting is not only for companies that are going “eco” or “fair trade”. It is even more important for companies that are not exactly in that arena to consider working on an impact report. 

This is because impact reporting is not (only) about amplifying the good things you are doing for the planet or mankind. More importantly, it focuses on how companies are working on reducing their negative impact that could bring risk to the company’s value creation. This information is critical to investors and banks when performing risk assessments on companies that wish to access capital or cash flow.

There are a few key reasons.

1. Access to finance

Many governments and banks are offering financial support for companies in transition. For that, companies need to identify, measure and track their transition.

Even traditional lending and investment vehicles now consider ESG impact as a critical risk assessment tool. Having ESG data handy will improve access to funding.

2. Changing consumer preferences

Whilst legislation may take time to catch-up, consumer preferences have proven to shift towards being more conscious.

Customers consider spending with companies that help them do good, and live up to their personal beliefs. They prefer to purchase from companies that are transparent about their impact, and make an effort to communicate it diligently.

3. Preparing for expansion

Most listed or large corporations are mandated by law to make their ESG information publicly available. Through surveys with the largest global and national entities, one of their largest difficulties was to identify the right data, and implement processes to track them efficiently.

This is because ESG data, unlike financial data, comes from all across the company, and requires the collaboration of various functions.

As ESG information will inevitably be part of every company’s critical data at some point, it will be cost and resource efficient to establish these data points at an earlier stage, gain the experience and internal understanding, and prepare the company for the future.

Reporting standards are a set of disclosures that help companies form a framework of what information to include in their impact report at minimal.

This allows the readers of the reports to understand the contents of an impact report, being able to compare them across the years or benchmark with other companies, and make informed decisions.

Amongst all reporting standards, the Global Reporting Initiative (GRI) is the most commonly used standard, and is often used as a basis for local jurisdictions or stock exchange requirements.

The EU has its own sustainability reporting standard which is the ESRS.

Other common global reporting standards are the SASB, TCFD and CDP.

A materiality analysis is a mandatory first step for any company that wishes to start reporting on their impact and ESG factors. This analysis involves identifying the most important areas of impact that the company has when it performs its business activities; as well as ESG risk factors that the company is more exposed to.

This is done by reviewing the company’s overall processes including corporate structure, products and services and supply chain. For every reporting standard, the recommended methodology may be a little bit different.

For example, a company that produces beverages has a material impact on the way they package their products. Equally, they are impacted by the availability of key resources such as water. The materiality analysis requires the company to understand how significant these areas are and prioritise them for data collection, and reporting purposes.

Check out our services to support you on your first impact reporting (go to pricing).

For voluntary reporting companies may choose their own reporting standards. For companies that are mandated to perform impact reporting by law, this depends on which jurisdiction your company is regulated by.

If your company is based in Europe, or has significant business activities in the EU, it is likely that the ESRS will be applicable to your company.

If your company is based in Asia, most of the requirements can be found from the stock exchange.

Hong Kong EX

Singapore EX

In most cases, your company can fulfil the reporting requirements by following the GRI reporting standards.

If you are in doubt, reach out to us to discuss your company’s needs. We offer a 30-minute free consultation. Book your session here.

All reporting standards are public documentations that are free to use. Here are some useful links to the most common standard setting entities, or the current standards:

GRI (https://www.globalreporting.org/)

SASB (https://www.sasb.org/)

TCFD (https://www.fsb-tcfd.org/) 

CDP (https://www.cdp.net/en)

ESRS (https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32023R2772 ) 

Whilst the standards are free to use, companies often seek external support from sustainability reporting professionals to help them perform their first analysis on identifying which impact areas are material to their company and how to build the required metrics. Baba Yaga can help you with getting started, see our pricing and plans here.