A complete guide to ESG goals: what to ask your ESG advisor for the report

ESG reports are tools that organizations use to communicate externally the interventions they have put in place to improve the environmental, social and governance impact of their activities. In this article we will see what ESG objectives and criteria are most important to include when approaching the report, and how to incorporate all the essential information within it.

As we saw in a recent article, many organizations have already been active in recent years by drawing up non-financial statements and corporate sustainability reports in order to highlight the steps they have taken to reduce their impact on the environment, to promote civil rights and equal opportunities, and to combat corruption and data misuse by encouraging more equitable governance policies for all.

In early 2023, the EU approved the Corporate Sustainability Reporting Directive (CSRD), the new benchmark legislation for non-financial reporting, which extends ESG reporting requirements to more organizations operating in Europe.

As we have already seen, although mandatory ESG reporting does not involve all companies on European territory, the habit of having this type of document is also spreading at the voluntary urging of individual companies, for reasons related to corporate reputation, environmental credentials, and long-term business strategies that prefer a holistic view of the company as a player within a broader context.

WHAT SHOULD AN ESG REPORT INCLUDE?

An ESG report must describe an organization’s status quo and future plans in terms of environmental, social, and governance impacts. To this end, a comprehensive report must include the actions taken to date by a given organization in relation to these macro-indicators:

• Environment: the actions put in place to combat climate change, decrease carbon emissions, protect biodiversity, quota the use of common resources, and make energy supplies more efficient;
• Society: includes interventions to promote diversity and equity, data protection and privacy, employee involvement in business decisions and life, and protection of human rights and labor standards;
• Corporate policies: internal controls under anti-corruption policies, transparent information regarding executive and employee compensation, shareholder rights, lobbying, whistleblowing programs.

WHAT TO INCLUDE IN AN EFFECTIVE ESG REPORT

An ESG report can be prepared by adopting different formats, both in terms of content and display, and that may depend in part on the specific industry and the recipients of the document. In the event that the company is among those required by law to prepare the report, reference will also be made to a specific framework and modalities provided by the current regulations.

A template is then outlined with guidelines outlining its content. It is critical that all data, metrics and KPIs included are clear and easy to read for those receiving the document.

Among the elements to be included is a balance sheet regarding ESG goals, which is intended to detail the picture of the situation and short- and medium-term goals, including metrics that will be monitored and compared with future performance.

If you already have data from previous years, including it by comparing it with the current state can be a great way to highlight the progress already made, the accountability of the organization, and the good practices already put in place toward greater social and environmental awareness.

Another good practice is to include one or more paragraphs drafted by the CEO and generally giving voice to corporate leadership: this choice can help convey key passages of the company’s vision more emphatically to stakeholders, shareholders, and investors.

We will see below in more detail what, for each of the three macro-indicators, are the main criteria to be included in ESG reporting.

ENVIRONMENTAL CRITERIA (E)

The environmental criteria in ESG reports allow organizations to describe the impact their activities have on the environment and the actions they are taking to reduce it. Any energy or greenhouse gas emissions certifications also find their way into this section. Among the criteria to be included are the following:

• Climate change

Keeping climate change in the spotlight is becoming increasingly important for consumers and investors. This criterion includes all information regarding carbon emissions, the company’s carbon footprint in terms of products and services provided, but also transport and indirect impacts; the environmental impact of funding and the vulnerability of the organization to climate change are also part of this horizon.

• Natural resources and energy

All information that relates to the use of natural resources, such as water resources, energy supply, land use, including the relationship with biodiversity in the territory and reporting on raw material use. A well-done ESG report should be clear about all these indicators.

The procurement of materials and goods with a proven association with environmental, social or ethical problems is considered a controversial procurement to be made explicit.

• Pollution and waste

This section of the report will include, but is not limited to, greenhouse gas emissions. The report should also include accurate information on the various types of waste produced by the organization, such as any toxic waste, electronic waste, packaging materials, and water supply. It is important that the data be laid out clearly and transparently to enable the recipients of the document to better understand the impact of waste on the environment and the improvement policies the company intends to pursue in this regard.

• Room for improvement and green strategies

Especially if there is considerable room for improvement, it is important to fill out this section carefully, describing all possible improvement actions to be pursued in terms of green building, renewable energy, clean technology, etc.

SOCIAL CRITERIA (S)

The social pillar describes how an organization manages relationships with employees, shareholders, suppliers and other stakeholders. Included in this section are:

• Human resources

This section incorporates all data related to occupational safety and health management, supply chain labor standards and employee development opportunities. It also includes more precise data about the organization’s employees such as general treatment, satisfaction and perceived security.

• Product liability

This section includes information regarding the quality and safety of the products or services provided, but also regarding the security and privacy of information, investment security and any risks.

For digital products and services, include information on privacy and data security.

In the case of physical products, it will be necessary to include specific information on product safety and quality, chemical safety, and other possible risks and considerations applicable to health.

• Social opportunities

An increasingly crucial part of the report concerns diversity, equity and inclusion. This section should include all planned interventions to improve the corporate status quo on social indicators, thus the opportunities to be pursued and the room for improvement.

GOVERNANCE CRITERIA (G)

The corporate governance pillar refers to the company policies and rules put in place for the management, control and management of an organization. These are the criteria that fall under this pillar:

• Corporate governance

This includes information about diversity and representation on the board of directors, executive compensation, ownership and accounting are part of this criterion.

Compensation transparency is increasingly becoming an indicator with multiple spillovers, including ethical ones, so it is good practice to include data and information about it.

• Company behavior and policies

This section of the report should include all information on corporate ethics, anti-corruption practices put in place, any lobbying activities, whistleblowing programs, and information on fiscal transparency.

Another key item to include in the report is related to cyber security, or report about the protocols and any security certifications that the organization has got, without omitting any areas of improvement.

CONCLUSIONS

International ESG reporting standards are starting to emerge more clearly in recent years, with new and more detailed regulations and timelines.

On this horizon, taking advice from experts in the field is the best strategy, to avoid errors in procedure and ensure full regulatory compliance and transparent and comprehensive reporting.