ESG: the new business paradigm – Sustainability Report

In the most recent article in the “ESG: the new business paradigm” series, we looked how at ESG reports, which are also known as sustainability reports, are indispensable for publicly traded companies that would like to be seen as an investment in ESG or even organizations that are not inserted within public markets but would also like to establish themselves as a reference in sustainable governance. Are you aware, however, of what these reports are used for, or how they are created? Whether or not there is established periodicity at which they published? What their importance is within the realm of ESG? This article will answer these and other common questions regarding ESG.

The sustainability report is one of the main tools that companies use to voluntarily report their performance and impact with regards to environmental and social aspects, as well as corporate governance – whether such indicators are positive or negative in nature – to society and other interested parties. The document complements company financial statements and its main objective is to publish socio-environmental data in a manner that is transparent.

Importance and Benefits

Writing and publishing a sustainability report is a key part of a company’s ESG strategy. It increases the efficiency of management systems in relation to the triple bottom line and, more importantly, allows companies to develop strategies that are focused on the future.

Not only do they provide sustainability for the planet and future generations, sustainability reports are very useful from a business perspective. Learn more about the main advantages of preparing and maintaining this document:

Increased practicality in disclosing data, facilitating the process of verifying compliance with regulations;
Fosters trust and transparency in relationships with internal and external interested parties;
Consolidates internal operational efficiency;
Strengthens internal communication and a sense of belonging, resulting in increased engagement among employees – collaborators are often not aware of initiatives from the company with which they may identify;
Reinforces an organization’s reputation and image of sustainability;
Offers support in making assertive decisions;
Provides orientations in adopting initiatives;
Increases understanding of risks and opportunities;
Allows performance to be compared both internally, between departments, and externally, between organizations;
Offers increased competitive advantage.

Is there a model for ESG reports?

Well, in the most recent installment of our series, we discussed a variety of existing frameworks that are widely used as guides for preparing sustainability reports. Using a specific ESG structure helps companies to orient their reporting processes, showing them where to look, what to measure, and how to communicate their findings.

We also saw that the GRI standard is the most widely disseminated and accepted, as well as the most widely used, framework worldwide. This is due to three important characteristics: its wide scope – it takes metrics from the three ESG pillars into consideration, flexibility, which makes it possible to accommodate differences that exist between organizations and economic sectors, and comparability, presenting content that runs parallel to financial reports.

It is also possible to opt for a company reporting model that, in addition to incorporating a series of different frameworks, often includes its own performance indicators in accordance with targets established by the company and the obligations contained in specific and regional regulations.

Steps in preparing a sustainability report

Preparing a sustainability report involves a specific process. According to the GRI, it is recommendable that organizations follow five steps while preparing reports.

Prepare – Internal discussion phase in which managers and directors offer insights in order to identify the most evident positive and negative economic, environmental, and social impacts.
Connect – Contributions from a wide range of target audiences linked to the organization such as stakeholders, suppliers, collaborators, etc., with regards to which aspects are considered to fall within the scope of ESG for reporting purposes.
Define – The most important positive and negative aspects that are to be reported are determined by the team, thereby contributing to defining the content that is to be prepared and the main focus of the report.
Monitor – Gather the data and indicators that are to be included in the final report. This stage is aimed at identifying the aspects that are to be monitored, which will result in a report that is clearer and more transparent.
Report – This stage involves preparing, editing, and defining important decisions with regards to how to communicate the results of collected data in the final report.

In addition to these stages, several “reporting principles” have also been defined which the GRI recommends be applied in order to increase the quality of reports. They are divided into two groups: principles for defining report content and principles for defining report quality.

Principles for defining report content:

1. Stakeholder inclusiveness – identifying stakeholders and explaining the measures that were adopted in order to meet their expectations.
2. Materiality – the report should present aspects that reflect the organization’s significant economic, environmental and social impacts, as well as those that may come to directly influence stakeholder decisions.
3. Sustainability context – the report should describe the organization’s performance in the wider context of sustainability.
4. Completeness – assess whether aspects that are touched upon in the report are sufficient enough in scope to reflect the organization’s significant economic, environmental and social impacts.

Principles for ensuring quality:

Balance – the report should reflect positive and negative aspects of the organization’s performance to allow its overall performance to be assessed in a reasonable manner.
Comparability – allow stakeholders using the report to compare information regarding the organization’s governance, as well as its environment and social performance, with the organization’s past performance, its objectives, and, to the furthest possible extent, the performance of other organizations.
Accuracy – the report should provide information that is detailed and precise.
Timeliness – regularly publish the report and make it available in a timely manner allowing interested parties to make informed decisions.
Reliability – gather, record, compile, analyze, and disclose information and processes used in the preparation of the report in a way that they can be examined, and the quality and materiality of the information determined.
Clarity – make information available in a manner that is understandable and accessible to stakeholders using the report.

Since a wide range of audiences will be able to read your sustainability report, do not forget to include a brief summary of the history of your organization. Additionally, it is important to use language that is easy to read in which technical terms are explained and explored using graphics and visual resources facilitating understanding.

A sustainability report does not merely involve the compiling of data. Publishing the report allows an organization to define its strategy, making it easier to define targets, measure performance, and even manage changes and initiatives as it moves towards implementing a sustainable business model.

Are you interested in learning more about ESG after having read this article? If so, I would like to invite you to view some of the other content that has already been prepared on this topic here on our blog!