Ten lessons businesses learn from sustainability reporting

Environmental, social and governance (ESG) reporting has really taken off since 2020. More and more businesses have recognized the need to report on their impact on the world. For some, it’s a way to provide information for investors, future employees, and customers. Others are responding to regulatory requirements in different jurisdictions.

Enhesa works with a large number of businesses that have started ESG reporting relatively recently, and we’ve noticed a range of approaches. To support our informal observations, we conducted in-depth interviews, focus groups, and some survey work. Here is the emerging picture from the ESG reporting frontier.

1. Almost all companies have some kind of ESG program, even if it’s not very mature

Increasingly, we’re seeing that most companies are starting to report on ESG issues. Their reporting may be fairly immature, but the majority of companies have an ESG program in place. This chimes with findings from elsewhere showing that the majority of businesses are now considering ESG issues in their financial reporting.

2. Programs tend to be segmented into the three areas of ESG

ESG activities tend to be fairly decentralized within companies, and the responsibilities are also scattered.

• Environmental activity and reporting tends to be led by the environmental manager.
• Social issues are more likely to be the responsibility of the HR team or the safety manager.
• Governance issues tend to be addressed by in-house legal teams, risk teams, or external legal advisers. 

We’ve also observed that environmental health and safety experts are likely to be involved in implementing ESG initiatives in their area of expertise. This is particularly true for environmental issues.

3. ESG reporting generally starts with environmental issues and mandatory reporting

Companies usually start their ESG journey with environmental activities. This may be because it’s easier to gather data on these issues than on social ones, such as supply chain labor practices. 

The environmental side is also subject to more regulations, though, with issues like emissions and waste already heavily regulated. This may therefore mean earlier action has been taken, which can be monopolized on. 

We’ve certainly seen that businesses tend to start with mandatory requirements.

4. The approach to ESG varies between sites and corporate programs

Many companies have a fairly ‘broad brush’ approach to their corporate ESG programs. These corporate programs are then used as a foundation by individual sites. The requirements of the corporate program are usually driven by investors and public image expectations. 

Sites, on the other hand, tend to develop their programs to respond to the demands of customers, employees and potential employees. Site programs also tend to be jurisdiction-specific, responding to local legislation and regulations.

5. An ESG reporting program develops and matures in stages

These stages are characterized by the personnel involved, and the level of strategic input. Here’s a general idea of how we see the program evolving in most companies: 

• During the initiation stage, the main input is from directors and executives deciding to pursue a reporting strategy.
• They hand over the responsibility to an ESG committee or team to take further.
• As the details become clearer, the practical aspects are handed over to people like the ESG manager, health and safety manager or HR teams. 
• Finally, at maturity, ESG programs are absorbed into ‘how we do things’ and become part of everyone’s responsibilities.

6. There seem to be two main approaches to the initiation phase

We commonly see businesses take one of two different approaches to implementing their ESG reporting: the ‘committee’ approach or the ‘resource’ approach. 

In the committee approach, an ESG committee is appointed from across the company, including project management, product design, sales and marketing, regulatory, engineering and R&D, and quality. The committee’s purpose is generally strategic, to embed ESG into the company culture. 

The resource approach is much more focused on reporting. It consists of a central ‘resource’ that collates data on ESG issues from around the company and prepares a single report.

7. Companies aren’t always clear how ESG fits with existing EHS reporting or activities

It’s perhaps not surprising that companies aren’t sure how ESG fits with EHS requirements. Terms used in regulations and documents are sometimes unclear, and there can be some ambiguity about what’s included in either. 

Companies aren’t entirely clear on what data they need to collect for each, or how audit requirements overlap. We’re seeing increased convergence between the two, though, with EHS data providing a foundation for ESG reporting.

8. Companies are using a variety of tools and approaches for data collection

There’s very little common ground on the tools and approaches used to collect data. The best word we can use to describe the situation is ‘messy’. There are several alternative tools available, and companies are trying them out. However, there is little clarity on the best sources of data, or which data should be included.

9. Finding out about regulations is the biggest challenge for most companies

The biggest issue for most organizations is finding out more about forthcoming regulatory requirements and changes in the ESG field. There’s no single obvious source to provide all the answers, so businesses tend to use a variety of sources for this information. 

We’ve found that they’re most likely to use governmental websites or newsletters to find out more about regulations on ESG issues. They also use consultancies, trade associations, and legal advisers. As far as we can tell, relatively few use paid subscriptions to regulatory sources.

10. Companies would like additional support on tracking regulatory requirements and compliance

We’ve found that most companies value additional support to keep track of regulatory requirements. Understandably, few are confident about their own abilities in this area. They’d also value additional support with report auditing to check for compliance with regulatory requirements. This isn’t widely available, and companies are finding it hard to access, even though some consultancies may be offering this service.