What are the Main ESG Requirements?

October 22, 2021

Environmental, social, and governance (ESG) reporting has become the primary focus for companies, as stakeholders such as investors and employees, among others, demand more responsible enterprise operations. ESG sustainability reporting entails the disclosure of a company's impacts or performance in different areas, including water use, electricity consumption, diversity policy, waste management, climate and impact on society.

With the report, stakeholders, such as people interested in investments or buying the final products/services, can appreciate the company's value creation beyond the financial focus.

Although ESG sustainability reporting culminates in a report that the stakeholders can use to assess the respective corporate entity, the most important part is the process. It has to be systematic to demonstrate how the efforts adopted by the company are promoting a sustainable economy. 

As the role of environmental, social, and governance sustainability becomes even clearer, stakeholders interested in investment have raised concerns about green-washing.

However, they are now more thorough and are demanding accurate and verifiable data from companies before committing their funds. So, if you are opening a new enterprise or already have one, simply creating a report showing all-nice aspects of its performance, perhaps on financial areas only, is likely to fall on hard rock. This brings about the main question, “What are the main ESG requirements?”

ESG Requirements

ESG requirements: A Brief about ESG Reporting

To understand the requirements for ESG sustainability reporting, apply them correctly in your company, and enjoy all associated benefits, it is important to go back to the beginning. So, where exactly did the concept of sustainability start?

Sustainability and ESG sustainability reporting are emerging concepts with roots back to about 30 years in Rio de Janeiro during the first-ever UN Conference on Environment and Development (UNICED). The member states agreed that the environment could not be looked at separately from the development because such an approach had failed already. It was an awakening and corporates had to rethink their investing models, funds utilization, risks, and opportunities.

In the latter conferences, especially the 2012 UN Conference on Sustainable Development held in Rio, the declaration, The Future We Want, articulately put forward the case for ESG reporting.

Views of sustainability as an environment only thing were revoked through the demonstration that every aspect, from business profitability, investments, financial aspect, social justice, war and hunger, urban development, and climate change, were part of it.

To make the world economy more sustainable, companies have a bigger role because they are critical cogs in global development. Now, environmental, social, and governance (ESG) reporting is part and parcel of many regulatory, advisory, investing and professional organizations.

For example, NASDAQ, NYSE, and EU have all laid down core requirements for ESG reporting to help investors make the right decisions.

One of the latest entities to join this queue is the Hong Kong Stock Exchange (HKEX), which has stringent requirements for ESG sustainability reporting, including a comprehensive performance report on future expectations of risks and opportunities for all listed firms. So, is your company ready for sustainability reporting? You better be because, as it stands now, this is the future of the planet, and you should be part of it.

ESG Sustainability Reporting Requirements for Companies

ESG requirements for companies differ slightly based on their nature, the selected framework, and demand from stakeholders. For example, a processing corporate firm that deals with coal will have a completely different focus based on its materiality assessment and risks compared to a financial or capital investing firm.

So, here are the common ESG requirements that you should factor in the reporting process:

Material

Materiality is, perhaps, the most important component in ESG sustainability reporting. It is the first step of ESG disclosures and is used to help review issues and prioritize them based on their impacts.

Note that this should be in line with stakeholders’ demands, implying that it must be carefully thought about and the data gathered from stakeholders and material assessment used to guide the core objective plus the strategy. To be more specific – try to focus on what stakeholders want, and that has the most significant sustainable impacts.

Objective

ESG Sustainability reporting for your company should be objective and properly balanced. The focus on sustainability may result in a number of issues and new risks that should be correctly reported.

If your company decides to adopt technology in all departments to eliminate waste, reduce inventory, and make data gathering easier, your staff might be resistant to changes. The impact of such resistance should be carefully captured in your ESG corporate report. So, do not just focus on the positive aspect of the story on the ESG report.

Strategic and Forward-Looking

For some companies, environmental, social, and governance (ESG) sustainability reporting is a costly undertaking. This notion has made some of them opt for "boiler-plate" disclosure that only captures a few data here and there. We must indicate that such reports are of no use to stakeholders because they are not sustainable, and they are likely to move on to your competitor.

Good ESG sustainability reporting should be integrated with the company’s operation design so that it becomes an important factor in decision making.

If you establish that the company is releasing a lot of emissions and have decided to cut it by 50% in the next five years as part of the sustainable operations, let the strategy, financial plan, resources allocation, and specific activities, such as focus on climate, resonate in the entire organization’s operation.

For example, funds used in acquiring new machinery, adopting green energy, and training staff should ultimately lead to lower cost of production in companies, better customer satisfaction, and success of the company. The notion of progress from the current "chaotic" to a more cohesive, healthier, and successful future is what stakeholders will want to see in the report. 

Comparable and Verifiable 

When the ESG sustainability report shows that you cut water use in the company by 30%, the targeted stakeholder will want to see how it was achieved. So, the data you gather along must be correct and verifiable by stakeholders. For example, you might have shifted to using solar and wind energy, options that help to reduce emissions. 

So, let the data before and after demonstrate the changes to targeted investors or customers. Then, define your plan to make everything even better.

Perhaps, your company might craft a strategy to persuade all suppliers to adopt green production and increase focus on the climate. See: if 1,000 manufacturers plus 5,000 other companies in the supply chain adopt green production, would the positive sustainability impact not be impressive? 

As you can see, the requirements for ESG sustainability reporting are getting more stringent. We will also tell you one more thing; the data involved is diverse and enormous.

You need to gather particulars on performance metrics, staff, emissions, profit, and projections for the ESG report.

This is not all; you also have teams focusing on ESG reporting and regulatory requirements, product development, and marketing, among other performance considerations. These things can be overwhelming for your company, right? This is why you should work with an appropriate ESG sustainability reporting program.

With the right software, you will be able to automate the process of data collection and ESG sustainability reporting. Good programs will easily integrate with your management system, protect your data, and guarantee you accurate reports. They take the hassle out of the process, allowing you to reap the maximum benefits of ESG reporting. Call Diginex today for the best sustainability management software and support.

 


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