What is ESG reporting?
ESG reporting involves the disclosure of data explaining a business’s impact in three areas: Environment, Social, and Governance. It provides criteria, especially for investors, to help find companies with values that match their own and to take not only the economic performance but also environmental and social performance into account for their investment decision.
What does ESG stand for?
Environmental criteria may include the energy use of a company, the amount of waste and pollution, natural resource conservation, and the treatment of animals. This can also help to evaluate any environmental risks and how the company manages those.
Social criteria focus on the working conditions, for example, equal opportunities, health and safety at work, human rights, product portfolio, social responsibility and supply chain management.
Criteria for governance can include business ethics, compliance, independence of the Supervisory Board, salaries, and shareholder structure.
Not a single company will pass every test in every category, so the investors need to decide what their priority is. ESG investing is also sometimes referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing.
ESG reporting is important in understanding a company’s full risk profile, but it can also lead to a better company reputation.
Is ESG reporting mandatory?
Companies can voluntarily disclose their ESG efforts in a number of places and formats, like corporate social responsibility (CSR) reports, company websites, proxy statements and other regulatory filings, and as part of sustainable share indices such as FTSE4Good or DJSI (Dow Jones Sustainability Index). Even though ESG reporting is still voluntary in most countries, global regulations regarding corporate ESG data reporting are increasing.