The big leap – Taking CSR to the next level with ESG
The big leap – Taking CSR to the next level with ESG
Sustainability is no longer just a buzzword in the corporate world; it is becoming recognized as a tangible business advantage. What started as a corporate social responsibility (CSR) movement just a few decades ago has become a foundational driver of company revenue, brand reputation, and investment value.
Over the past few years, establishing CSR practices has become extremely important to investors in particular, and the term “sustainable company” now has substantial meaning. Statistics show that a company’s sustainability efforts can be directly linked to stronger business outcomes while making the company more attractive to new hires, consumers, and investors alike. In fact, the Global Sustainable Investment Alliance reported that global sustainable investment topped $30 trillion in 2018, up 1,000% since 2004.
With sustainability becoming a more prominent trend in the investment landscape, the informal CSR reporting approach is rapidly being replaced by a strong demand for companies to report on Environmental, Social, and Governance (ESG).
The evolution of CSR to ESG
CSR is a familiar term to anyone working for a large business. “Corporate sustainability reporting” evolved in the 1980s as a way for chemical companies to provide environmental reports and, ideally, improve their public image. Since then, many companies have used CSR reports to showcase their positive environmental and social impacts, build a “give-back” culture through activities such as volunteer work, and attract new talent.
Sustainability efforts have often been measured using KPIs (key performance indicators) which identify relevant data that’s used in annual CSR or sustainability reports designed to showcase the positive impact a company has on its employees, consumers, the environment, and the community at large. For many years, investors and board members paid little attention to these reports. KPIs were often unavailable and, even when they were, the data wasn’t standardized or required for regulatory reports.
Today, sustainability has matured in value to both the board and investors, and many companies include corporate social responsibility at an executive level or have entire departments devoted to sustainability. However, it’s no longer enough to simply follow environmental laws, volunteer, and give donations.
Because of sustainability’s rapidly growing importance, companies are shifting from a voluntary CSR (or “feel good”) reporting model to a standardized practice of reporting their ESG efforts through quantifiable metrics to demonstrate responsible business operations.
ESG as a standard
ESG action and reporting are becoming vital to understanding a company’s corporate mission, strategy, and management values. ESG measures the impact a company has on its employees, consumers, the environment, and community using clear-cut assessments and specific metrics.
In particular, ESG looks at how a company:
- Treats its workers
- Builds trust and fosters innovation
- Manages supply chains
- Responds to climate change
- Ensures best-practice governance
For example, when it comes to the environment, a company could demonstrate kilowatts of energy conserved, tons of carbon emissions avoided (or carbon intensity), and gallons of water saved (or water intensity), alongside goals for continuous annual improvement.
Rather than viewing ESG as an “add-on” to business management, companies are beginning to embed ESG strategies and approaches at the core of their operations. ESG touches all facets of a company, including purchasing, diversity, human rights, ethics, the environment, and more.
Specifically, ESG standards provide a key assessment marker for investors. A quarter of the world’s professionally managed investment funds only invest in companies that demonstrate solid ESG credentials and practices.
How to begin moving to ESG reporting
While companies are feeling the pressure to get up to speed on sustainability, there are still many kinks in reporting standards and guidelines. Here are a few recommended steps to help generate impactful results after reporting:
First, it’s vital to understand ESG reporting standards. There are over half a dozen reporting standards, such as the Task Force on Climate-related Financial Disclosures (TCFD), Global Reporting Initiative (GRI), Climate Disclosure Standards Board (CDSB), Carbon Disclosure Project (CDP), Sustainability Accounting Standards Board (SASB), UN Sustainable Development Goals, and European Commission Guidelines, to name a few. Companies should learn the difference between these reporting standards and select a framework with a high degree of relevance to their industry.
Secondly, companies need to understand material concepts, a process also known as materiality mapping. The means businesses should determine what issues are most important and relevant to their core business and the industry. For example, carbon intensity is very important and highly relevant to oil and gas exploration but not as relevant to a financial institution.
Third, companies need to ask and answer “so what?” questions. “So what?” questions are the relevant questions investors and stakeholders will ask about a particular topic, a financial statement item, or a risk factor. Companies need to quantify the impact or outcome, if possible. Identifying these questions in advance and using quantifiable ESG data to answer them will ensure your reports provide clear and insightful information for your investors and stakeholders.
The last significant step in moving to an ESG reporting platform is getting approval from your board. Understanding the importance of ESG practices and appealing to your board with hard facts on the value ESG provides for investors will be the best way to win them over. Having a board that supports the company’s sustainability efforts will signal investors that your company is aware of ESG-related risks and opportunities.
The bottom line
In a nutshell, while CSR reporting provides a way for companies to showcase the sustainable impact they’re achieving, these reports often focus on the intangible and inconsequential. Businesses that want to be taken seriously are moving toward adopting a more impactful ESG mindset.
Despite the still evolving ESG reporting standards, ESG frameworks are becoming widely recognized as a standard among all capital markets participants, both public and private. A company’s ability to demonstrate value through ESG metrics and disclosure will add value to its business model and improve its attractiveness to investors, consumers, and other stakeholders.
ESG materiality assessments
With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.
An ESG materiality assessment empowers you to easily report your current state and outline what future initiatives will focus on. Learn what an ESG materiality assessment is, what the benefits for your organization are, how the assessment supports sustainable investment strategies, and how Goby can help support your ESG materiality assessment process and provide strategic benefits for your organization.