Key Challenges faced by companies in ESG Reporting
Multiple Reporting Frameworks
The proliferation of reporting frameworks has complicated the reporting field, because of varying or conflicting metrics, definitions, and priorities.
While each reporting framework has its own purpose and rationale, multiple reporting frameworks become confusing and conflicting. Companies struggle to reconcile this fragmentation with an aspiration to increase the comparability and efficiency of reporting.
The Volume of Ratings and Rankings
Companies receive many requests for information from individual ratings and rankings organizations posing difficulties, such as
i) assessing the credibility and significance of various ratings and rankings organizations,
ii) requests for information that may not be material to the company’s impact on sustainability,
iii) a risk that material information may be selectively disclosed to some investors and not others,
iv) spend large volume of time spent responding to requests etc.
A common refrain from reporting managers in companies is that of “Survey Fatigue”. They find it overwhelming to respond to the volume of inquiry from ratings, surveys and other stakeholder groups.
Multiple Target Audience
While financial reports have investors as their sole audience, sustainability reports cater to multiple target audiences with varying expectations for what a company should report.
Practitioners are increasingly aware of a need to tailor sustainability reports to their target audiences but remain challenged to develop reports that provide their diverse set of stakeholders with the “right” disclosures to inform the “right” decisions.
Increasing Depth of Expertise
Companies are tasked with the difficult role of producing reports that disclose information across various issues and geographies for stakeholders with expertise on a wide range of topics—everything from climate change to human rights, and privacy to labor standards.
This has significantly increased expectations for the level of detail and sophistication provided by companies in their communications.
Companies, on the other hand, need to balance this demand with a competing need to simplify their reports.
Different Definitions of Materiality
According to the U.S. Supreme Court, information is deemed material if there is “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”
However, using the term “materiality” in the context of sustainability reporting and identification of issues relevant to stakeholders beyond investors can cause confusion within companies.
Sustainability Reporting Strategy
Reporting standards, ratings and rankings, and in-bound stakeholder requests all serve to motivate changes in a company’s reporting and business practices.
However, the multitude of demands can result in reactive and tactical, rather than strategic, approaches to sustainability reporting.
The Primer on ESG Strategy and Reporting
Leading ESG Standards
Global Reporting Initiative (GRI)
Focus: Corporate social responsibility with an equal weight on environmental, social and governance factors. Heavy on stakeholder engagement to determine materiality.
GRI was announced as the official reporting standard of the UN Global Compact, making it the default reporting framework for the compact’s more than 5,800 associated companies. It is among the oldest, most widely adopted and most widely accepted reporting methodologies in the world. The framework has a thorough focus on social and governance aspects of ESG.