In the corporate world, sustainability was long considered a “nice-to-have”. However, due to increasing regulatory pressure and ever louder demands from investors, customers and other stakeholders for sustainable corporate governance, there has been a fundamental shift in perspective. Companies are increasingly being evaluated on the basis of their ESG performance and sustainability has now become a “must-have”.
Comprehensive ESG reporting can make a decisive contribution to gaining the trust of stakeholders and improving the internal and external perception of a company. However, the legal reporting requirements are complex and the selection of relevant topics, KPIs or frameworks is a challenge, especially for companies that want to report on their sustainability performance for the first time. Companies also often feel overwhelmed by the transparency requirements and are unsure whether they are disclosing too much information or at what point they run the risk of greenwashing.
As a consulting agency, cometis AG supports companies from various industries in the preparation of sustainability reports. As part of the Global ESG Monitor, we have already analyzed and evaluated more than 1,300 reports, gaining comprehensive insights into best practices and trends and building up an extensive best practice database. Based on our many years of experience, we present below a selection of tips that newcomers to ESG reporting should be aware of:
1. Holistically Understanding of sustainability
The pre-condition for good ESG reporting is the development of a fundamental understanding of the three dimensions of sustainability – “E” for environment, “S” for social and “G” for governance. The three dimensions mean that sustainability encompasses more than just environmental protection. The sustainability report should therefore take into account and reflect various aspects from all three dimensions. Depending on the company’s field of activity, however, certain focal points may be useful in sustainability reporting.
2. Selection of a roper reporting framework
Frameworks and standards specify the key figures that a company should disclose and therefore provide important guidance to help sustainability reporting to be carried out in a structured manner. In future, the European Sustainability Reporting Standards (ESRS) will establish a consistent and comparable standard for sustainability reporting by companies in the EU. The new European standards will gradually become mandatory for all companies in the EU. It therefore makes sense for companies to familiarize themselves with the requirements now, for example through an ESRS Readiness Check. In addition, there are already a large number of national and international frameworks and standards with different focuses and recommendations. The best-known of these include the Global Reporting Initiative (GRI), the UN Global Compact (UNGC) or the German Sustainability Code (DNK). International standards must be taken into account, especially for globally active companies.
3. Development of an ESG strategy
It is becoming increasingly important for companies to deal strategically with the megatopic of sustainability and to take environmental, social and governance aspects into account in their corporate strategy. A sustainability strategy should be developed to ensure that sustainability in the company is not just a collection of individual measures. The development of a sustainability strategy takes time and should be seen as an ongoing process. However, only with a comprehensive sustainability strategy will it be possible to anchor sustainability in the company in the long term and report on it in a well-founded manner. The sustainability strategy should be based on a clear vision and be linked to the company’s values. Various analytical methods such as environmental analysis, expert surveys, peer group analysis and materiality analysis can be used to support the development of a strategy.
4. Identification of material topics and stakeholders
Before starting ESG reporting, it is essential to understand which topics are relevant for the own company and its stakeholders. A helpful tool is the materiality analysis, which supports companies in creating well-founded ESG reporting and optimizing their ESG strategy. As part of a materiality analysis, the most important sustainability issues are filtered out and evaluated. An important part of the materiality analysis is stakeholder mapping and stakeholder engagement. This involves identifying the relevant stakeholders and determining their expectations and needs.
5. Identification of goals and definition of measures
With the help of a materiality analysis and stakeholder mapping, companies can find out which topics are of particular importance for them and who the most important stakeholders are. In addition, frameworks and standards provide guidance on which key figures a company should disclose. The next step is to identify concrete sustainability goals from the information obtained and define measures for implementation. The targets should be in line with the company’s values and business objectives, while at the same time being realistically formulated and taking into account the company’s available resources in terms of their feasibility.
6. Systematic collection of data
Up-to-date, comprehensive and comparable data is the basis of a sustainability report. It is therefore important to implement structures for systematic data collection, storage and processing within the company. One option for systematic data collection is an ESG data center. The data center helps to meet the requirements of the ESG guidelines and ensures consistent reporting. Data in all three ESG areas can be collected in various ways, for example through interviews, questionnaires or consumption measurements. For more complex data, such as in the area of CO2 emissions, it can be useful to consult external experts and use established procedures.
7. Clear structure of the report
ESG reporting should be clearly structured so that it is easy to navigate through the various topics. The structure of the first report can be based on the ESRS guidelines. Accordingly, the report should be divided into four main chapters: “General Information”, “Environmental Aspects”, “Social Aspects” and “Corporate Governance Information”. Within the chapters, tables and graphics should be placed in context and categorized. It is also advisable to include an overview table of the frameworks and standards used and their criteria at the end of the sustainability report, as well as a reference to where they are mentioned in the report. A glossary also helps with the comprehensibility of abbreviations and technical terms in the report.
8. Planning time and human resources
Good sustainability reporting involves effort, especially if it is the first report of its kind. It is therefore important to plan sufficient time and personnel resources for the initial preparation of the text. However, this investment is worthwhile, as a well-designed ESG report can be used as a basic framework for the following years, which only needs to be supplemented with new content and data. When planning, sufficient time should also be allowed for feedback loops. Especially when different departments and a large number of people are involved, it can take time for the first draft to become the final version.
9. Communicating the commitment to sustainability
There are numerous motives for disclosing sustainability-related information. In addition to regulatory requirements, many companies want to improve their sustainability performance and meet the growing demands of relevant stakeholders such as investors and customers. To ensure that ESG reporting is perceived accordingly, active communication is crucial. The completed sustainability report should be available on the website for all interested parties and be easy to find there. Other channels such as press releases, social media or events and conferences can also be used to draw attention to the publication of the sustainability report and the company’s own commitment to sustainability.
10. Further development of ESG reporting
ESG reporting should be seen as a dynamic and ongoing process. The aim should be to develop and expand the report year on year. Especially at the beginning of systematic ESG reporting, the amount of data available can still be limited because the processes required for data collection still need to be established within the company. However, good ESG reporting is not characterized by the largest possible amount of random data, but by an honest and transparent presentation of a company’s progress and challenges in the area of sustainability.
As part of the Global ESG Monitor, cometis AG regularly examines the transparency of the non-financial reporting of the world’s largest companies and uncovers some major transparency gaps. Accordingly, even smaller companies should not be discouraged by the complexity of ESG reporting, but should instead take their own path to good sustainability reporting step by step.
Your contact for further questions about ESG reporting, the Global ESG Monitor or the various services offered by cometis AG:
Michael Diegelmann, by telephone at +49 611 20 58 55 18 or by e-mail at diegelmann@cometis.de