What Your Business Needs for an Accurate ESG Disclosure

Almost every business today understands the significance of complying with ESG norms.

But there is a huge difference between understanding the rules and complying with them. And then, devising ways to monitor the performance over a period and listing it down in a formal disclosure is no easy task.

As a responsible business, how can you go beyond implementing a basic ESG program and report the performance in a formal disclosure?

Let’s find out.

What is an ESG Disclosure?

ESG disclosure involves the sharing of non-financial information related to a company’s performance and impact on environmental, social and governance factors. It is a comprehensive framework that enables a business to communicate its efforts and progress toward sustainable practices and responsible business operations.

In simple words, ESG disclosure involves sharing data related to your organization’s ESG performance. Such disclosures help a business validate its conformity to regulatory norms and meet stakeholder requirements. This enables investors to make informed decisions by identifying businesses that comply with ESG regulations.

Additionally, businesses that undertake ESG disclosure have an edge over their competitors. By validating a company’s claims about its ESG commitments, these disclosures attract new-age consumers who are increasingly aware of environmental and social concerns and conscious in their buying decisions.

The Need to Select a Reporting Framework

Several stakeholders need to use data related to an organization’s ESG disclosure. Organizations must therefore present their ESG disclosure in a way that can be easily used by these stakeholders. They must identify the core audience and choose a reporting framework that aligns with their requirements.

Popular frameworks include the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Principles for Responsible Investment (PRI), Task Force on Climate-related Financial Disclosures (TCFD) and International Integrated Reporting Council (IIRC).

These frameworks offer necessary guidance on reporting principles, performance indicators and best practices, enabling companies to align their ESG reporting practices with industry standards and stakeholder expectations. They also ensure that data is standardized and can be compared across different businesses as well as industries.

Where Is Your ESG Disclosure Used?

Rating platforms run by investment and finance communities use ESG disclosure data to generate ESG scores. These scores are calculated based on a variety of factors, such as ESG disclosures and initiatives, and help compare one company to another in terms of their ESG performance. Typically, these scores range from 0 to 100, with a score of less than 50 considered poor and more than 70 considered good.

Secondly, ESG disclosure data aids a more ESG-savvy generation of prospective customers, investors, employees and supply chain partners who use it to decide whether they want to buy from or do business with the company.

Additionally, government agencies and regulatory bodies use ESG disclosure data to make funding-related decisions such as grants and tax incentives. They may also levy penalties or fines.

Accurate Disclosure Demands Greater External Collaboration

While measuring performance is vital to arriving at an accurate ESG disclosure, collaborating with different stakeholders is no less important.

Many businesses have internal teams collaborating for ESG program targets. However, there is an increasing need to collaborate with external stakeholders in the supply chain, says Raghu Ekambaram, senior director of consulting at GEP in this podcast.

In this endeavor, businesses need to collaborate with their suppliers and the larger community as well as industry peers. They need to figure out where their suppliers are in their ESG journey, understand incentives that can work for them and then work toward bringing them along in the journey, Raghu adds.

By involving external stakeholders, businesses can gain the much-needed visibility and data to accurately assess their performance. For example, they need to work actively with suppliers to determine their scope 3 emissions that originate in the supply chain.

Aavni Piparsania, director of business development at GEP, also stresses the need to focus on external stakeholders. “When a company focuses on its internal initiatives, that is only a small piece of the pie. The largest, most complex part of that value chain really is where the suppliers sit in collaboration with your company’s operations,” she says.

Organizations need to leverage an integrated, strategic and software-based approach to gain the visibility needed to make meaningful progress toward ESG, adds Aavni.

This is where technology comes into play. Technology platforms help establish ways to manage data and reporting needed for an accurate ESG disclosure.

Learn how GEP GREEN can help your business manage ESG data and disclosure requirements.