ESG Reporting: Herding Cats
In recent years, Environmental, Social and Governance (ESG) reporting has pivoted from companies voluntarily reporting metrics and targets in alignment with global standards to being mandated by governments around the world. In Australia alone, 87% of the top 200 ASX-listed companies meaningfully report on ESG[1]. As the reporting of ESG topics has matured, so has the understanding that with these risks also come opportunities.
ESG reporting can be difficult to implement within an organisation, as it goes beyond any one area and requires a holistic approach from operations to management to executives, as well as the collection of large amounts of data. Often, companies that want to begin their ESG journey are unsure where to start or what result they want.
Recently, the point of discussion has been to what extent governments worldwide expect companies to report on ESG targets and metrics. In particular, as the reality of climate change intensifies with each passing day, there has been much debate as to the scope of mandatory reporting of greenhouse gas emissions.
Why report on ESG?
There are two main reasons to report on ESG: the emerging reporting requirements from government agencies such as the Australian Accounting Standards Board (ASSB) and the internal and external social pressure on companies to voluntarily report their ESG credentials.
Australia is currently in a state of flux as we move away from voluntary sustainability reporting toward mandatory reporting; it is in the process of ingesting the International Sustainability Standards Board (ISSB) standards and determining how best to apply them to the Australian context[2].
As ESG reporting becomes mandatory, failure to report will have a twofold consequence:
1) A financial impact in the form of fines from regulators and
2) A loss of the social license to operate from the public.
Conversely, ESG reporting also has benefits beyond just meeting societal and regulatory obligations. Reporting on ESG involves a top-to-bottom understanding of your organisation. It can expose areas for improvement and highlight key success opportunities, i.e. by integrating one business area into others or opening a possibility of diversifying the business.
Where to start?
The first step in your ESG journey is to understand what you need to report on. Sustainability reporting takes the same approach that financial reporting does - by asking companies to report on what is material to their operations. From there, it is just a matter of finding the data and reporting it correctly to the framework. Though, therein lies the problem! How do you decide what is material and which framework fits best?
The current best practice for voluntary reporting is to view your operations through the lens of double materiality. This incorporates the traditional concept of financial materiality, which is how a company is affected from a financial standpoint, and impact materiality, which is how the company impacts external topics.
Once material topics are determined, it is just a matter of sorting through the multitude of sustainability frameworks to establish which best fits your organisation.
But what will be required when mandatory reporting is introduced?
As it stands, the ASSB consultation on sustainability reporting was limited to climate-related disclosures and took the approach that “Materiality of information is judged in relation to whether omitting, misstating or obscuring that information could reasonably be expected to influence decisions of primary users of general purpose financial reports”[3]. If all sustainability reporting aligns with this approach, then we will see mandatory sustainability reporting essentially become another aspect of financial reporting.
Data collection roadblock
Once an organisation has determined what it needs to report, it will then need to begin collecting data, which can often be where it hits a major roadblock. While many organisations are well versed in reporting the financial and production data that makes up their operations, they are less accustomed to collecting ESG information within their organisation.
Companies are often surprised that the data exists on some level but is not being aggregated or reported at the executive level. Initial attempts at reporting can be hampered by difficulties, such as in determining who within an organisation is responsible for the data and what systems and processes are in place for collecting the data.
If you are unlucky, the information is not being collected, and systems have to be put in place to do so. All this is being done while trying to ensure you report in alignment with either the sustainability reporting framework or mandatory disclosure requirements.
Greenbase is here to help
With decades of experience in assisting companies with sustainability reporting we are uniquely qualified to assist, from materiality to framework selection and collection of data, Greenbase is here to make it as easy as possible. As Australia's only Global Reporting Initiative (GRI) Certified Software and Tools Partner, we are uniquely positioned to offer robust, auditable ESG reporting.
[1] https://www.pwc.com.au/media/2021/esg-reporting-among-asx200-improves.html
[2] https://treasury.gov.au/sites/default/files/2023-06/c2023-402245.pdf
[3] https://www.aasb.gov.au/admin/file/content105/c9/AASBED_SR1_10-23.pdf
Greenbase. Makes Sense.