Corporate ESG Reporting: The Landscape in 2022

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The concept of ESG is not new, but its importance in corporate reporting programs is growing rapidly. From investors, to NGOs, to employees, to civil society, a company’s performance on environmental, social and governance issues is under the microscope with more stakeholders now than ever before. Credible reporting on ESG data is becoming a must-have for all companies, but the complex world of frameworks, rankings, and regulations can be overwhelming.

In this episode, sustainability consultants at Schneider Electric kick off a new series focused on ESG, starting with the basics: what are the key frameworks, why are they important, and how can organizations decide on the right ones to follow for them?

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Welcome to The Sustainable Business Podcast, a show featuring conversations, shaping the future of energy and sustainability. The Sustainable Business Podcast is produced by Schneider Electric Sustainability Business Team.

???????????????With this first episode of our new podcast series, we are kicking off a set of episodes dedicated to exploring the trends, challenges, and opportunities in corporate ESG performance and reporting. Investor interest in corporate ESG. Data is skyrocketing and mandatory reporting rules are emerging all around the world. To help businesses navigate the sustainability disclosure landscape, we've lined up an exciting set of topics that will dive deep into ESG and what's in store for the future. Today, our experts discuss what ESG means for business, overview the five main types of reporting organizations, and offer tips for companies to grow and mature their own ESG reporting programs.

Emily Austin:

Hello, welcome. Thank you for joining us. My name is Emily Austin. I'm a sustainability consultant in Schneider Electric Sustainability Business. Today I'm joined by my colleague and friend Rebeca Mendoza, who is also a sustainability consultant. We're going to discuss the complex, but important world of ESG reporting. ESG reporting, which stands for environmental, social and governance reporting, is not a new concept, but you might have noticed that it has been getting more and more attention, and with that, increased importance in the last few years. Stakeholders, investors, NGOs, and now also the general public have all turned their focus to how companies are performing across all of the aspects of sustainability and for really good reason.

Sustainability makes business sense. Studies show that businesses with strong ESG credentials attract better talent, outperform their peers, have increased financial returns, and are also more resilient to climate change risks.

To make the best use of ESG data to inform investments under the decisions, stakeholders really want to see transparent, comparable, and consistent disclosures coming from all of the companies. To address this need, both organizations and regulators in the ESG reporting ecosystem have developed a variety of different frameworks and regulations meant to guide companies to disclose information that is most relevant to their investors and stakeholders.

It's these ESG actors that we're going to talk about today. But first, let's back up and hear a bit more from you, Rebeca. Why don't you kick us off by sharing a bit about your experience working in ESG?

Rebeca Mendoza:

Thank you, Emily. Precisely, as you said earlier, ESG is having an important momentum these days. In our quest of helping clients to achieve their sustainability goals, we come across a lot of questions regarding ESU reporting. Clients are being requested by their stakeholders to disclose their activities and best practices within their environment, society, and inside the governance of their company. Most of our services at the beginning were only related to the environment, but now they have developed and we are evolving into strategy design for social and governance topics as well. Green finance is also driving most of the ESG reporting hype as well, but we can talk about it another time because there is a lot to cover in there.

Emily Austin:

Yeah, true. Green finance is a big driver. I see lots of companies now starting to involve ESG into their business strategy to benefit from the financial gains that it can bring. Of course, this is on top of the global climate justice benefit. Businesses typically begin with building their environmental reporting roadmap and end up building on social and governance issues relevant to their stakeholders later on. The services that we conduct are around doing just that, like finding out what is most material for the stakeholders, and then moving into a strategic roadmap from there.

Just to make sure everyone is on the same page here, Rebeca, as someone who's been in the industry for some time now, could you explain ESG in the corporate context? What kind of things come to mind for you when talking with customers about ESG reporting?

Rebeca Mendoza:

Well, to begin with, ESG are just constantly repeated letters now, but in essence, ESG is a way to quantify, measure, and report a company's sustainability ambitions. The letter E stands for environment, S for social, and G for governance. A company reporting on the environment will include information such as the carbon footprint, any sustainable initiatives that they might have, goals related to the procurement of renewable energies, among other goals, to reduce their footprint. The letter S relates to the bond between the company and the society. Most likely all efforts related to diversity and inclusion, benefits for employees, and educational programs.

Finally, the letter G relates to the governance happening inside the company, which is translated in information related to the members of the board, how decisions are taken among other initiatives that impact the activities of the company. After a company collects all of this information within their activities, then the reporting time comes. It is exactly the part that can be a little bit confusing since currently there are a lot of bodies that companies might look at to find inspiration of what to disclose. I know the ESG universe might be overwhelming, but if we think about the enormous lack of information existence some years ago, the information we have today is actually really helpful.

Emily Austin:

Yeah, totally. It is incredible really how much information is out there now, to be honest. Also, slightly daunting. Don't worry, hopefully we're here to help. Even just thinking about how sustainability reports have progressed in the last 10 years up until now, there is so much more information, so many more options, and even much further developed strategies out there. There are some amazing examples across different industries of companies reporting in a really, really detailed way, including strong commitments and distinct actions that they have in place for all environmental, social, and governance areas. Hopefully everyone has a good understanding now of what we mean when we say ESG and also how big this topic can be.

Let's dive in and learn a little bit more about each of the types of ESG reporting organizations. Rebeca, can you walk us through each of the different types of reporting organizations and why they matter to different companies?

Rebeca Mendoza:

Sure, Emily. Let's start with the different types of organization involving ESG reporting. First, we have organizations that issue voluntary ESG disclosure guidance. Then we have organizations that aggregate ESG data, organizations that create ESG ratings and rankings, initiatives that provide certifications, guidance and target setting support, and regulatory bodies.

Emily Austin:

That is a lot of different types of organizations. Can you explain to us what each one does?

Rebeca Mendoza:

Yes. I know there is a lot of information out there, but I am going to cover it now, so bear with me, please. First, we have organizations that issue voluntary ESG disclosure guidance. These organizations such as TCFD, GRI, SASB, CDSB, I don't know if you have heard of them, well, they provide sets of standards that companies can use to guide their ESG reporting and disclosure efforts. They typically issue voluntary guidance that companies can choose to follow in full, partially, or not at all. They exist to streamline disclosures and ensure ESG reporting is relevant to stakeholders. And usually they do not verify, assure, or assess a company response in line with their guidance.

Emily Austin:

Yeah, these are very familiar to me. I've worked with SASB and TCFD in particular in the past with my clients. If anyone is interested, all of these methodologies are available publicly online.

Rebeca Mendoza:

And also if I may add, Emily, at our SE Perspectives Hub , we also have different articles that cover them. It might be helpful to give them a read. To continue with our list, we have organizations that aggregate ESG data. These organizations such as CDP, GRESB, and Bloomberg compile company ESG data and present it in a way that makes it accessible to a variety of stakeholders and users of that information. Data is either sourced from direct surveys or requests delivered to each company or by reorganizing publicly available data into a single platform.

Emily Austin:

That is super useful for companies to make direct comparisons then.

Rebeca Mendoza:

Exactly. For example, if you visit the CDP website, you can have access, although limited, to the information of different companies reporting there. But just to be clear, this information might follow different criteria. Therefore, be careful when you benchmark companies against each other using different aggregators.

Emily Austin:

Oh, okay. Yeah, that is definitely one to watch out for. So far you've told us about voluntary disclosure organizations and data aggregators. Which were the other types of organizations that you said?

Rebeca Mendoza:

We have only three more types to cover. The next ones are organizations that create ESG ratings and rankings. These are third parties that cover information available in the public domain, such as annual ESG reports, news, website information, or any other public disclosures, such as CDP, to generate a company's ESG rating or ranking. Each of them uses its own methodology and materiality indexes. These are used by stakeholders and companies as a quick benchmark on an organization's ESG performance. For example, the Dow Jones Sustainability Index, I'm sure you have heard of it as well, is one of the most relevant rankings. Normally they are published every year, but of course, there might be the case where the ranking update differs.

Emily Austin:

One thing that you mentioned is that you have to be aware of the criteria used in these data aggregators. This can also be the case in ratings and rankings, right?

Rebeca Mendoza:

Yes.

Emily Austin:

The criteria could be different in each one. When I talk to my clients about this, for example, it might be the case that a company performs really well in one rating and not well in another one. This doesn't mean that the company is performing badly. It just means that the ratings and rankings could be measuring different criteria.

Rebeca Mendoza:

Exactly. Good to know. Always, it's best to compare apples with apples. Be careful for that. Then moving back to discussing the types of organizations, there are initiatives that provide certifications, guidance, and target setting support. These initiatives such as Science Based Targets initiative, RE100 and PCAF can contribute to increase the industry's awareness of ESG, as well as enhancing a company's or a financial institution's ability and capacity to improve ESG reporting. Many of these frameworks have emerged specifically to address the environmental impacts of ESG, aiming to drive ambition and transparency for companies in the low carbon transition.

Emily Austin:

Actually, yeah, I see that Science Based Targets initiative is growing massively, which is amazing. I think that there are now like over 3000 companies that are part of the Science Based Targets initiative universe, and the targets have also become more aggressive recently this year, in fact, and now have to be in line with 1.5 degrees warming.

Rebeca Mendoza:

Which is good news, right? Because it tells that companies are really starting to do their sustainability homework, and we are always happy to support them in their journey. The last type of organizations that I want to talk about are the ones that create regulations, that mandate ESG data and performance disclosure. Government agencies and jurisdictions around the world are consistently moving towards stronger requirements when it comes tog policies and disclosure regulations. As such, mandatory sustainability reporting requirements are increasing.

?Europe has led with the CSRD, the EU ETS, and the EU taxonomy, and many other regulations, but other countries are following close behind with new reporting requirements, including the SEC's proposed climate disclosure rule in the United States. These last ones are super important because the work of the first discussed organizations will not have the same impact if regulations are not coming to force.

Emily Austin:

Totally. Having the regulations in the reporting standards makes for a much more equal playing field when it comes to the companies joining into the ESG reporting, right? Mandatory reporting also must have a huge impact because it ensures that the companies have to learn about ESG and really focus on building their business sustainably. Thank you for explaining the different types of organizations. It is now abundantly clear why ESG reporting is confusing and frankly can be pretty overwhelming to so many companies. There is a lot to learn and many decisions to be made about it, about what information to report and also where to report it. With that in mind, what our best practices to guide customers to decide which reporting frameworks are best for them?

Rebeca Mendoza:

Very good question, Emily.

Each reporting is unique to every organization and depends on their own goals, strategy, and stakeholders. Actually, when I am involved in this conversation with my clients, I recommend them to think about some questions like, who is their stakeholder? Is it investors, the society, maybe customers, or maybe employees. What do they seek to achieve? What is most important in their business and for their stakeholders? Which parts of the ESG are they excelling in? What is the image that the company wants to reflect?

I also ask them if they want to focus more on environmental side, social, or governance, and also what are the peers of the industry reporting. I give them this list of questions that when reflected will give them a clue of what to report in their environmental, social, and governance reports.

Emily Austin:

Okay, lots of things to think about then, lots of different angles to attack from. Those questions give a really good basis for companies to start with when beginning their ESG reporting journey. I definitely use a few of them when working with my clients that are starting on this path. When considering the image a company wants to reflect, you have to think about the maturity of the reporting company. Some companies report to CDP as a strategy to comply with their internal stakeholders, but they hide the scores to external stakeholders.

They can choose to publicly report their scores, and it just depends on what image the company wants to reflect as to whether they do or not. Their strategy will also help determine which organizations or which initiatives or rankings that they want to get involved with and which guidance they should choose.

Rebeca Mendoza:

Yes, because to be honest, every company has a different strategy and some ESG tools might work for one company, but not be perfect for another. They need to know where they are standing, where do they want to go. It has been really useful to know what their peers in the industry are doing as well, or even their vendors and clients, because there are challenges that are a common denominator and companies can get inspiration from others' work.

Emily Austin:

You mentioned looking at what a company's peers are doing. This is usually known as benchmarking. It is a really useful way for companies to assess their own maturity and to find the correct support in ESG reporting. They want to know both the industry standard and where they stand against both their peers and competitors, as well as how they stack up against the companies that are leading the way in ESG reporting. How do you recommend that businesses find out who is successfully reporting on ESG, especially those relevant to them? How can they identify the companies in their space who are leading the way?

Rebeca Mendoza:

Okay, let's go step by step. There are a few things to think about. The first place I would recommend to take a look at is the company's website. Normally, this is the main platform where companies market their efforts, and it gives us an idea of where to look at the rest of the rankings, organizations that they are committed to. Next, we take a look at the ratings in which they appear and what criteria is being evaluated. For example, if they participated disclosing information in CDP, we also go through their response to analyze better their aggregated value.

And finally, all of their joint efforts with the organizations or industry peers will also give us an important data to conclude our benchmark. These are all the steps that we go through with our clients, and we can adapt the benchmark to the client's need.

Emily Austin:

Perfect. From my experience in our work on this is that it is a long process to gather all of this information about a company and its peers. Having said that, benchmarking is an excellent and super valuable service that can help clients to do direct comparisons with their competitors or to match their initiatives with their supply chain targets. This is an example of what I've had to do recently for a client. Rebeca, thank you. You've given us such excellent advice. And all of this gives us a lot to think about when it comes to designing a company's own ESG reporting strategy, because it really is that, an intentional strategic exercise.

At Schneider Electric, we work with our customers every day to craft effective and efficient sustainability reporting strategies, helping companies to deliver the most impactful information to their investors and other stakeholders. Today, we really just scratched the surface of corporate ESG reporting. Thank you for listening along with us and we hope that you have learned a lot. We invite you to visit our Schneider Electric Perspectives Hub , and also to take a look at the resources in our episode notes to find guidance that you can use today to enhance your company's ESG communications and disclosure practices. Stay tuned for the next episodes in this series where we will explore even further the future of ESG.