7 ways voluntary ESG reporting pays off for companies
Voluntary sustainability/ ESG reporting today gives companies a clear edge on the competition ahead of tomorrow’s upcoming standards. Here’s why.
In the last 10 years or so, voluntary sustainability/ESG reporting (of environmental, social and governance issues) has become increasingly important for businesses. It began largely as a public relations exercise, and particularly as a way for companies to improve their reputation by demonstrating that they were doing good work in the community – or for the environment. However, this more intentional evaluation of a company’s efforts has increasingly become both essential and something for which corporates can be held accountable.
As voluntary sustainability/ESG reporting becomes mandatory…
The the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights set out recommendations for companies about how to conduct business in a responsible and sustainable way. Both sets of standards are voluntary and encourage companies for disclosure of material information on ESG matters (even expanding to indirect emissions from products). There are of course other voluntary standards but the idea is that as governments around the world move towards mandatory sustainability/ESG reporting standards (such as the Corporate Sustainability Due Diligence and amending Directive 2019/1937 proposal), this voluntary compliance is turning out to be a very good move in a number of ways.
Many of the new regulatory requirements or proposals around the world are crystallizing voluntary frameworks that have been in place for some time. After all, there is no point in reinventing the wheel. This means that companies that are already actively reporting on ESG issues have a huge competitive advantage as mandatory requirements are introduced. There are several very good reasons for this – here are 7 of them:
1. Voluntary compliance helps to establish an overarching framework for reporting and standards
Generally, companies following voluntary disclosing recommendations have already established a policy framework for this work. They have clear policies within which they operate for ESG issues, and these standards are familiar throughout the company. This means that moving to a mandatory reporting system will be relatively easy, especially since mandatory requirements generally replicate voluntary arrangements.
2. These companies usually already have a compliance and reporting team in place
Similarly, companies that are complying with voluntary standards have often put teams in place to manage sustainability/ESG reporting. They may have a compliance team, or clear lines of responsibility within business units, or sometimes both. Whatever the chosen structure, it is likely to be familiar to those involved—and the ongoing relationships between units will support mandatory reporting and compliance too.
3. Companies have suitable goals and objectives for reporting in place across the organization
The third element of a system for sustainability/ESG reporting, alongside policies and people, is goals and objectives. If you have been reporting on a voluntary basis for some time, the teams and individuals concerned will already have these goals in place. This will support easy extension to mandatory reporting and ensure that the need for compliance is already documented within the organization.
Starting early, as part of voluntary disclosure, gives you time to work out what works for your business.
4. Voluntary sustainability/ESG reporting provides practice for mandatory disclosure
It takes time to develop a system for sustainability/ESG reporting and compliance. Starting early, as part of voluntary disclosure, gives you time to work out what works for your business. It provides practice, and means that when mandatory requirements come into force, you will be ready. You will therefore not need to worry about whether your reports will be adequate or compliant. Instead, you will know that this is the case.
5. Reporting will already be ingrained in your company DNA
One of the hardest aspects of introducing new reporting requirements is to make it part of ‘how we do things around here’. Starting early, and on a voluntary basis, gives you time to build up that awareness, and embed the necessary practices into your company DNA. You will also have had time to build up relationships with suppliers and customers so that you can share information where necessary for reporting and compliance purposes.
6. Voluntary reporting helps to build strong trust-based relationships
There is evidence that voluntary sustainability/ESG reporting actually helps to build strong trust-based relationships within an ecosystem. This is true for links with both customers and suppliers—but it also follows for investors too. The provision of more information helps to support this process, so a longer period of reporting will build more trust.
7. A stronger ESG record makes a more attractive employer
Like customers and investors, potential employees are also interested in companies’ records on ESG matters. A strong history of voluntary compliance with clear and transparent reports is extremely helpful here. Potential employees can see exactly what has been happening, and over what period. This makes the company much more attractive in a tight market for talent. This is likely to have huge benefits over the next few years, especially with COVID-19-driven changes in the workforce.
These are only some reasons why companies already adhering to any sort of voluntary disclosure can benefit from an advantage on transitioning to the mandatory reporting.
Voluntary or not – successful sustainability/ESG reporting starts with strong EHS
If your company already has voluntary sustainability/ESG reporting in place – then you’re a step ahead of forthcoming standards and regulations. However, soon, it won’t be enough. To truly future –proof your processes, you’ll need to make sure your metrics are verifiable, and evidence based.
On the other hand, if your company is looking to start reporting, then the best place to begin is by using your bedrock of compliance information. Either way, standardized and measurable EHS metrics are the key to success. To learn more about developments in related standards – and how your company will need to align – watch our webinar: “ESG and sustainability reporting: Changes and how to get ahead.”