Sustainability has now become an indispensable requirement in the corporate world. On the one hand, legal requirements continue to increase, while on the other, a company’s sustainability activities are playing a central role for more and more stakeholders. For example, banks now often link their lending conditions to a company’s sustainability performance. In addition, the ESG performance of companies is relevant for more and more investors and increasingly serves as an important criterion for their own investment decisions. Other stakeholders, such as customers, business partners and ESG rating agencies, are also increasingly demanding information on companies’ sustainability performance. Many companies are now deciding to publish an ESG report, particularly in order to fulfil this need for information and gain access to better financing options.
Detailed ESG reporting can play a key role in building trust with stakeholders and positively influencing both the internal and external image of a company. It can also bring financial benefits, for example by attracting new investors or gaining access to more favourable loans. However, the legal requirements and common standards for reporting are complex, and selecting the relevant content, key figures and frameworks is a challenge, especially for companies that are dealing with reporting on their sustainability performance for the first time. Companies often feel overwhelmed by the transparency requirements and are unsure whether they may be disclosing too much information or at what point they run the risk of being accused of greenwashing.
As a specialised sustainability consultancy, cometis AG supports companies from various industries in the preparation of ESG reports. As part of the Global ESG Monitor, we have already analysed and evaluated more than 1,300 sustainability reports, gaining comprehensive insights into best practices and trends and building up an extensive best practice database. Building on this wealth of experience, we present below a selection of mistakes that companies should avoid when preparing their first ESG report.
1st Mistake: Not Understanding Sustainability Holistically
The basis 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 ESG report should therefore take into account and reflect various aspects from all three dimensions. Depending on the company’s field of activity and sector, however, it may make sense to emphasise certain aspects in the report.
2nd Mistake: Disregarding Reporting Frameworks
ESG frameworks and standards provide valuable guidance that can be used to structure sustainability reporting. For example, frameworks and standards provide specific key figures that a company should disclose. There are 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) and the German Sustainability Code (DNK). Various criteria should be taken into account when making a selection to ensure that the frameworks and standards used are appropriate for the company. Key factors include the company’s location and the specific sector in which it operates. In future, the European Sustainability Reporting Standards (ESRS) will create a uniform and comparable standard for sustainability reporting by companies in the EU. It already makes sense for companies to familiarise themselves with the comprehensive requirements, for example with the help of an ESRS Readiness Check.
3rd mistake: Not Developing an ESG strategy
It is becoming increasingly important for companies to strategically address the megatopic of sustainability and incorporate ESG aspects into their corporate strategy. A holistic ESG strategy should be developed to prevent sustainability in the company from remaining merely a collection of individual measures. The development of an appropriate strategy takes time and should be seen as an ongoing process. However, only with a comprehensive ESG 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 ESG strategy should be based on a clear vision and be linked to the company’s values. Various analytical methods such as environmental analyses, expert surveys, peer group analyses and materiality analyses can be used to support the development of the strategy.
4th Mistake: Failing to Identify key Topics and Stakeholders
Before starting ESG reporting, it is important to understand which topics are relevant for your company and its stakeholders. A helpful tool is the materiality analysis, which helps companies to create well-founded ESG reporting and sharpen their ESG strategy. In the course 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.
5th Mistake: Neglecting Concrete Goals and Measures
With a materiality analysis and a stakeholder mapping, you can find out which topics are of particular importance to your company and who the most important stakeholders are. In addition, ESG frameworks and standards provide guidance on which key figures a company should disclose. The next step is to derive specific 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.
6th Mistake: Unsystematic Collection of Data
Up-to-date, comprehensive and comparable data is the basis of a sustainability report. It is therefore important to implement processes and structures for systematic data collection, storage and preparation within the company. One option for systematic data collection is an ESG data centre. This helps to fulfil the requirements of regulators, ESG frameworks or ESG rating agencies, for example, and to ensure consistent reporting. Data in all three ESG dimensions can be obtained in various ways, for example through questionnaires, interviews or measurements of consumption. For more complex data, such as in the area of CO₂ emissions, it can be useful to consult external experts and use established procedures.
7th Mistake: Not Developing a Clear Structure for the Report
ESG reporting should be clearly structured so that it is easy to navigate through the various topics. The ESRS guidelines provide good orientation when structuring the first ESG report. 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 contextualised and categorised. It is also advisable to include an overview table of the frameworks and standards used, including their specific criteria and references to the relevant passages in the text, at the end of the sustainability report. A glossary can also be helpful to improve understanding of abbreviations and technical terms used in the report.
8th Mistake: Insufficient Planning of Time and Personnel Resources
Good sustainability reporting involves a lot of effort, especially if it is the first report of its kind. It is therefore important to plan sufficient time and human resources for the initial preparation of the text. However, this investment is worthwhile, as a well-organised ESG report can be used as a basic framework for the following years, which only needs to be supplemented with new content and data. Sufficient time for feedback loops should also be factored into the planning. Especially when different departments and a large number of people are involved in the creation of the text, it can take time for the first draft to become the final version.
9th Mistake: Lack of Communication of Own Sustainability Activities
There are numerous motives for disclosing sustainability-related information. In addition to fulfilling legal requirements, many companies want to improve their sustainability performance in order to meet the expectations of relevant stakeholders such as investors or customers. Active communication is essential to ensure that ESG reporting is recognised and recorded accordingly. The final sustainability report should be made available to all interested parties on the website 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.
10th Mistake: Neglecting the Further Development of ESG Reporting
ESG reporting should be seen as a dynamic and ongoing process. The aim should be to further develop and expand the report year on year. Especially at the beginning of systematic ESG reporting, the amount of data available and the level of detail of the information might still be relatively limited because the necessary processes for collecting data and information still need to be established within the company. However, good ESG reporting is not characterised by the largest possible amount of arbitrary data and information, but rather by an honest and transparent presentation of a company’s progress and challenges in the three sustainability dimensions E, S and G.
By avoiding fundamental mistakes in the preparation of the sustainability report, companies can ensure that their efforts and progress on ESG issues are fully recognised and appropriately assessed by stakeholders. As part of the Global ESG Monitor, cometis AG regularly analyses 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 put off by the complexity of ESG reporting, but should instead take their own path to good sustainability reporting step by step.
Do you need further advice on preparing your ESG report? Then cometis is the right contact for you: We will be happy to answer your questions by telephone (+49 611 20 58 55 18) or by e-mail (diegelmann@cometis.de)!
Michael Diegelmann: Founder and CEO, cometis AG
Michael Diegelmann has taken over 50 companies public and gained experience in over 250 investor relations and ESG projects. He has been active in the field of capital market communications since 1997 and is a proven expert in ESG topics.
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