ESG: Lessons learned from the field

ESG reporting is the disclosure of environmental, social and corporate governance data to relevant stakeholders of an organization. As part of our preparation and approach to assist  our clients in the emerging area of ESG, we have spoken to organizations who have invested time and resources toward implementing a formal ESG program, including some who have issued their inaugural ESG status reports. We were interested in learning about what drove their planning and reporting decisions, what they learned throughout the process, and what challenges they encountered along the way.

A few key takeaways / What we heard

In terms of embarking on their ESG journey, the drivers for action varied from regulatory compliance to satisfying a varied set of stakeholders. Stakeholders include:

  • Employees and potential recruits, who are more determined than ever to work for companies that are largely aligned with their personal and social values.
  • Boards of Directors that have a vested interest in understanding the effectiveness and appropriateness of their organizations’ governance processes.
  • Investors, who are shaping their investment decisions on qualitative factors that are addressed through ESG reporting, such as whether a company has a formal program for diversity, equity and inclusion or if the company is investing in renewable energy sources.
  • Clients and customers that are educating themselves more and more to ensure that they are supporting businesses that are aligned with their values.
  • Communities, who are impacted by resident companies. Whether it be economical, environmental or social, local communities are interested in understanding the ESG initiatives and metrics, and overall social impacts, of companies they host.

Interestingly, numerous organizations reported that the financial performance of their business improved once they began to develop, focus on and monitor the data related to their ESG initiatives.

Taking the first steps / Where do you start?

Once organizations have decided to initiate an ESG reporting process, they first need to determine which framework to follow. A framework is a set of principles specifying the structure for reporting. As mentioned in our prior article, there are various frameworks, ranging from SASB (Sustainability Accounting Standards Board), which focuses on matters of importance to investors, to the United Nations Sustainable Development Goals, which address global priorities related to ESG. In general, organizations selected the reporting framework, or a mix of frameworks, that most closely matched the interests of their vested stakeholders and their organization’s operational and strategic goals. The set of frameworks continues to evolve, and it is important to have an educated team helping decide on a framework.

Good news! Organizations found they didn’t need to start from scratch. Since there is often overlap between ESG measures and existing organizational operations and initiatives, certain topics were already being tracked, such as the amount of fossil fuels being used or the levels of employee turnover, allowing them to leverage existing information and to identify areas in which additional data and information may be needed. Overall, as with any kind of corporate or financial reporting, being prepared to record, track and access the necessary data will be essential to provide relevant and reliable ESG reporting. Accordingly, organizations, both small and large, found it useful to seek help from experienced advisors, particularly those who could help identify trends and measurable data in existing reporting that could be mapped to the selected framework.

Adopting and implementing / How to foster organizational buy-in

ESG reporting success is dependent on teamwork and buy-in. A company’s employees and leadership need to care about and support the core ESG efforts to ensure the program becomes part of who an organization is, and not just an additional report they issue to check a box. Some common actions that organizations found beneficial when starting an ESG reporting initiative, both as part of the process and the culmination of initial reports, included:

  • Socializing the efforts both internally and externally to establish a common understanding and to communicate goals and direction;
  • Identifying and communicating successes on the ESG path to stakeholders, but starting with a focus on existing, measurable topics; and
  • Establishing a focused foundation from which to develop and grow their ESG program.

While the initial reaction tends to be that ESG reporting is onerous, we have learned that it doesn’t always need to be. Leveraging existing frameworks and enterprise resources can ease the burden and serve as a familiar foundation to build upon. We have found that once companies begin the ESG dialogue, the other pieces start to fall into place, including strategic decision-making, implementation of standards and eventually reporting.

BNN will continue to monitor the ESG reporting landscape and the efforts of local and national organizations so we can provide further insights and developments in this growing and evolving area.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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