What are ESG reports?
In an ESG report or sustainability report, a company provides insight into its strategy and policy on sustainability, how it implements it and how it scores on the various metrics. Sustainability, or ESG, stands for Environment, Social and Governance.
Why sustainability reporting?
In the 2015 Paris Agreement, countries agreed to limit global warming to below 2° Celsius, with a clear view of 1.5 degrees Celsius. The European Union has translated this into measures and policies (the Green Deal) to be climate neutral by 2050. One of these measures is that companies must use a sustainability report to show how sustainable they are so that investors and banks can make choices about where to invest or lend. The Corporate Sustainability Report Directory (CSRD) includes the requirement to prepare such a sustainability report. In the coming years, more and more companies will have to comply with this CSRD directive (and other directives). To avoid having to prepare retroactive data or reports later, it is advisable to start now. Because before you have determined what and how you are going to report, you will first have to think about what you are going to report on.
Starting point of the sustainability report is the principle of financial materiality (e.g. the influence of climate change on the company) and impact materiality (influence of the company on its environment). Together they form the ‘double materiality’: the impact on and the impact of the company.
A sustainability report matters not only to financial shareholders (shareholders, banks, financiers) but also to employees, customers, local residents, interest groups and other stakeholders.
There’s a jungle of standards, frameworks, legislation and mandatory & voluntary ESG disclosure. Goal 17 provides an overview of current legislation, most applied standards and underlying reporting frameworks.
European legislation (e.g., the Corporate Sustainable Reporting Directory) requires large companies to prepare sustainability reports from 2024/2025 using a binding reporting standard: the European Sustainable Reporting Standards. Financial market participants and financial advisers, through the Sustainable Finance Disclosure Regulation, were already required to integrate sustainability risks into their investment decisions since 2021. The EU taxonomy is a classification system developed by the EU to define economic activities considered environmentally sustainable.
Global Reporting Initiative (GRI) and Sustainable Accounting Standards Board (SASB) are independent, international standard-setting organisation that helps companies, governments and other organisations take responsibility for, and clearly communicate their impact on the world.
Organisations such as Carbon Disclosure Project, Green House Gas Protocol and STBi provide standards, systems and methodologies for measuring and reporting CO2 emissions, climate change, water security and deforestation.
Finally, the Human Rights Due Dilligence is an approach by which companies minimise their negative impacts on human rights and maximise their positive impacts.
What is the Corporate Sustainability Reporting Directory (CSRD)? The CSRD requires large and/or listed companies to publish regular reports on the social and environmental risk
What is the Task Force on Climate-related Financial Disclosures (TCFD), to whom does it apply and why is it important?