ESG reporting refers to the disclosure of qualitative and quantitative data explaining a business’s added value in these areas: environmental, social, and corporate governance.
Some examples of what an ESG report may look at are listed below:
Environmental: climate change, deforestation, biodiversity, toxic waste emissions, waste, and pollution.
Social: human capital, employee retention, health and safety, training and development, human rights, and diversity.
Corporate Governance: board composition, executive compensation, lobbying, whistleblower programs, and tax transparency.
What is ESG Reporting?
Also known as Sustainability Reporting, ESG Reporting gives stakeholders insight into more than just the bottom line, by identifying potential opportunities and risks the firm is facing or may face in the foreseeable future.
- Non-financial or extra-financial information
ESG reporting communicates to stakeholders, in the form of an integrated report, non-financial information that relates to the company’s environmental, social, and governance impacts.
- A holistic view of the company
Besides the bottom line, a company has many areas of potential impact, sustainability reporting focuses on these potential areas and therefore provides a holistic view of the company.
- A communication tool
ESG/sustainability reporting is an opportunity for companies to communicate to their stakeholders the areas where they are adding value to their community and the greater good.
- Answers to a wide variety of questions
An ESG report is an effective way to answer a wide variety of questions outsiders may have about the company, in a single document.
- A custom fit
An ESG report is not a standardised report. It will look different for every firm according to their industry, reporting methodology used, values, goals, and other factors.
Why is there a need for ESG Reporting?
In the past, ESG Reporting was non-existent. Today it is a buzzword. Why is it that there is suddenly a need for a more value-driven approach to reporting than financial reporting allows?
- As the firm becomes more and more interwoven into society, transparency and social responsibility have become increasingly important.
- ESG reporting allows investors to better evaluate drivers of value creation. By reporting on ESG, companies send a signal to investors that they can mitigate risks and generate sustainable long-term financial value.
- ESG reporting is important for brand value and reputation. Millennial and Gen Z consumers are a significant driver for ESG reporting.
- Employee retention and recruitment. ESG helps attract new talent.
- New regulatory developments by governments and non-governmental organisations such as the UN are increasingly emphasising the need for corporate ESG disclosure.
- ESG reporting is important as it communicates business strategy and purpose.
- 90% of companies in the S&P 500 have already made publishing ESG reports the standard.
- ESG reporting is a powerful tool for gaining a competitive advantage, building good relationships with stakeholders and strengthening internal operations.
The ‘How’ to ESG Reporting?
Creating an ESG report can be quite challenging, as the company must decide:
- How to communicate relevant information – the presentation of the data? Graphs, pie-charts, percentages, explanatory paragraphs, etc.
- What metrics and indicators to include – industry-specific indicators? Is the data balanced?
- Which reporting methodology the company chooses to subscribe to – the Global Reporting Initiative (GRI), the Sustainability Accounting Standards (SASB), the United Nations Sustainable Development Goals (SDGs) are but a few of the most well-known ESG frameworks.
OneStream Software provides a market-leading intelligent finance platform that unifies CPM processes such as planning, financial close & consolidation, reporting, and analytics through a single extensible solution.
Most companies using the OneStream Software use it for their financial reporting, but the same software can store and process ESG/Sustainability information.
Step 1: Input
- A separate Workflow is created for ESG Reporting.
- ESG data is imported from the source file or data is manually entered.
- Via Transformation Rules, the data is mapped correctly and accepted into OneStream.
- OneStream is flexible – there is not one way to pull ESG data into the system. The ESG report may make use of data from the financial database. This data can be pulled directly from the finance Workflow, or it could be loaded into the ESG Workflow. Clients may want two separate Workflows, for simplicity’s sake.
Step 2: Process
- Based on the clients’ requirements, Dimensions are created to describe the data being loaded into and reported out of OneStream.
- The different Dimension hierarchies would indicate groupings of ESG information.
- To slice and dice the data further, User Defined Dimensions are used according to client specific requirements.
Step 3: Output
- The data is processed within OneStream and presented in the form of Dashboards and Cube Views, which is then added to the integrated ESG report.
- An ESG Dashboard is shown below.
Corporations that currently make use of OneStream for their financial reporting are now provided the opportunity to further simplify their reporting process by storing their ESG information and interacting with the data in the same place.
Read OneStream’s insights on the benefits of aligning ESG reporting with financial reporting.
In the interconnected world firms find themselves in, integrated reporting of financial and non-financial information is crucial for the business’s success. Stakeholders need more performance indicators than just the bottom line or the position on the balance sheet. Every firm has a different selling point, and therefore an ESG report allows a company to communicate to current and prospective investors their area of value creation.
More than that, a sustainability report forces the firm to formalise potential risks through disclosure. An ESG report also helps the firm recognise potential opportunities that it may have otherwise overlooked.
Finally, more detailed reporting enables the firm to align with its ESG goals to improve its operations. Hence, the importance of using a unified consolidation platform, such as OneStream, which houses and interacts with both financial and non-financial data.