Understanding ESG Reporting Standards and Frameworks The use of third-party ESG disclosure standards and frameworks is the starting place for any voluntary ESG reporting your business wishes to conduct. In 2022, the use of ESG and sustainability reports continued to…Read full post
5 ESG Reporting Challenges and How to Address Them
With the surmounted growth of ESG in recent years, there come consequential challenges from reporting tactics to ideological concerns. If you understand ESG to be mainly about pragmatic risk management, all the ideological fuss can be confusing. The current state of ESG is admittedly imperfect for various reasons, but the hyper-polarized misinformation machine that is churning out anti-ESG rhetoric is a far cry from the solution. Do not let uncertain regulatory changes, political backlash, fears of greenwashing accusations, and a possible recession with inflationary pressure limit your firm’s commitment to ESG planning and adoption. Above all, there are monumental risks to ignoring environmental and social risk factors. In this article, we will lay out the 5 top reporting challenges, then list ways to address these and succeed at ESG reporting.
ESG Reporting Challenges:
1. Lack of a standard
As it currently stands, there is no single standard for sustainability frameworks and disclosures, not to mention that they often have conflicting requests for data that compete with one another. The alphabet soup of reporting frameworks (TCFD, SASB, GRI, CDP, GRESB, etc.) has created mayhem for organizations trying to get started. Without proper research and goal-setting prior to reporting, the process of determining a reporting framework is impossible.
2. Rapidly changing landscape
If it wasn’t enough that there are too many frameworks, they are also always changing. Due to the lack of a standard and the political landscape constantly altering, reporting framework rules seem to be ever-evolving. Especially as disclosure becomes regulated, it is a challenge for most organizations to stay on top of changing legislation in order to avoid penalties and stay in compliance.
3. Data inaccuracy
One of the largest challenges most organizations face is data collection. Data inaccuracy and incompleteness are a product of an inconsistent landscape and lack of a standard. Aside from a few measurement tools (like the GHG Protocol), there is much uncertainty around measurement processes and reporting framework methodology.
Due to uncertainties around reporting framework methodology and issues with data inaccuracy, greenwashing becomes a major challenge. The above difficulties often lead to organizations focusing on the bare minimum forms of disclosure and a lack of actionable, progressive goals or sustainability initiatives.
5. Political backlash & the anti-ESG movement
ESG has become the target of backlash from both sides of the political spectrum. Most of these arguments are driven by the fact that they do not believe ESG to be a financially relevant metric, so it is creating unnecessary investment and economic risk. In addition, they worry that ESG is a distraction from the corporate imperative to focus on ROI and economic growth. For more of a discourse on the political backlash against ESG, we recommend downloading our full guide to ESG reporting,
How to Address ESG Reporting Challenges:
The key to good ESG reporting is to be a pragmatist, and understand that ESG is not a silver bullet. Always begin by learning and understanding the risks that your stakeholders consider material. Additionally, try to separate the terms ESG and climate change from their associated politicized narratives when operationalizing ESG practice within your firm. ESG is no more than an elevated way of describing risk management and corporate social responsibility for issues proven to be material to business, but have not been historically treated as such (ie. environmental risks and externalities, social justice and equality concerns, and fair leadership practice). Climate change is a science, but firms can start by narrowing the scope of their understanding of this mythically inflated topic by tackling topics like energy security or the energy transition, employment and living standards, and resource depletion.
When starting your ESG reporting journey, here is a simple step-by-step process to begin:
Step 1: Conduct a materiality assessment to determine which ESG issues are most important to your company, being sure to outline the KPIs you plan to use.
Step 2: Gather resources from reporting organizations directly or outsource consultants when determining which reporting framework(s) you will start with.
Step 3: Stay diligent in sharing your reporting progress and goals. Even if progress was not made, address why this is and what will change. Report continuously, even when unfavorable, to show transparency and trust and avoid greenwashing claims.
Step 4: Alter business operations and begin to integrate sustainable action across your entire organization. Establish lines of communication and data sharing across teams so that everyone understands the ESG imperative.
Step 5: Internally audit and gain external assurance on your reports. This will help keep your organization accountable, while also attracting investors.
Miscellaneous ESG Reporting Tips:
- Don’t underestimate the importance of ESG. Good risk management and quality data collection on ESG metrics lay the groundwork for business success.
- Don’t overpromise on ESG. The fundamental issue with ESG practices by firms that are accused of greenwashing is due to conflating your impact and positive externalities.
- Before choosing a framework, ensure you are 1) educated on all frameworks, standards, rankers, and raters, 2) understand your audience and relevant stakeholders, and 3) have an established overall intent of your report
- Data is the most important component in ESG reporting. Metrics for carbon, energy, waste, water, and social indicators are captured from different
sources, making them difficult to access in a consolidated way for reporting and decision-making. Additionally, businesses that are still using older methods of ESG data management like manual spreadsheet entry will be at increased risk of legislative, investor, and market liability risk, not to mention productivity loss.
WatchWire Can Help
WatchWire has the tools to handle all experience levels and sectors among our clients dealing with ESG and sustainability reporting. We are not just a data
dashboard for high-level executives, we are an end-to-end energy and sustainability data management solution that can automate data capture and generate high-level insights on all environmental metrics: water, waste, energy usage and intensity, renewables mix, GHG emissions accounting, sustainability goal tracking, and more. Integrating directly with several internationally recognized reporting standards, WatchWire can also help you report with ease and automatically keep your firm up to date with the changing data requirements from these frameworks.
To learn more about WatchWire’s ESG reporting functionality, download the WatchWire Solution Brief here.
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