How to write an ESG report

Writing an ESG report is an excellent way for European businesses to demonstrate their commitment to environmental, social, and governance (ESG) issues. Effective ESG disclosure is crucial for companies to provide external stakeholders, such as asset managers, authorities, and potential customers, with a comprehensive understanding of the risks pertaining to their operations, emissions, and supply chain. This level of transparency allows for informed decision-making and fosters trust and confidence in company management.

An ESG report provides investors with crucial information about the company's current activities and future plans in these areas. It also helps companies measure their performance on issues such as carbon emissions, human rights, corporate governance structures, and board diversity.

ESG reporting is currently a legal requirement (CSRD) for many European entities and will encompass all European companies and organizations by 2027/28.

Be aware that the steps outlined in this article are general steps. If you are interested in digging into the finer details of each step, enjoy further reading here on the site, or contact us directly. We are here to help!

If you are new to ESG report writing, learning about ESG might feel overwhelming and "just like another chore, comparable to your tax administration." At iimpcoll, we understand this, and in our series of articles, we hope to break down these topics into bite-sized chunks to make them digestible for you. It isn't super complicated in the end – it is just a lot of new terminology and abbreviations. Let's take one step at a time. If you feel we have not explained something clearly, feel free to email us with feedback, and we will publish an updated version or an additional article as soon as possible – visitor@iimpcoll.com.

If you need more in-depth help, feel free to contact us at consulting@iimpcoll.com. We also offer hourly support. We've got your back!

For an even broader overview article, see ESG Reporting Explained.

Step 1: Understanding why ESG reporting is important for businesses in the EU

By submitting an ESG report to investors and other stakeholders, organizations can demonstrate that they are taking responsibility for their actions by measuring and managing their environmental performance as well as social impacts. This provides investors with a clear picture of how responsibly the company is managed, which in turn helps them make more informed decisions when investing in a particular company. Additionally, it helps build trust between customers and business owners.

Furthermore, in many instances, companies in the EU are required by law to publish ESG reports for their stakeholders. To comply with these regulations, businesses need to ensure their report covers all relevant aspects of environmental and social performance and governance structures. Through an effective report, investors can better analyze a company's operations and determine if they are a safe investment. Not only is sustainability reporting important for legal reasons, but many organizations find it has tangible benefits like increased visibility and improved brand reputation. By providing regular updates on their environmental practices, businesses can show their commitment to sustainability, which can help attract more investors and customers. Similarly, by sharing details of their corporate governance structures, companies can demonstrate that they are transparent and accountable to their stakeholders.

Another side effect of ESG reporting is a deeper understanding of the value chain and material flows, which can lead to better and more targeted financial decisions.

Step 2: Understanding CSRD compliance & what it means for your ESG reporting obligations

The European Union's Corporate Sustainability Reporting Directive (CSRD) is an essential piece of legislation for businesses operating in the EU. It sets out a framework for companies to adhere to a range of social and environmental standards and requires firms to report on their compliance with those standards annually. This means businesses must assess and monitor their social and environmental performance and report on it transparently.

By expanding on the existing requirements set by the Non-Financial Reporting Directive (NFRD), the CSRD broadens the scope of reporting. It now includes metrics related to social and governance performance, such as employee health, human rights, bribery, anti-corruption, and diversity in management.

Furthermore, the CSRD not only necessitates transparency through public disclosure but also mandates independent auditing. This highlights the importance of substantiating claims regarding ESG metrics and sustainability performance with reliable data.

Step 3: Understanding the CSRD timeline – when do I need to do what?

Furthermore, the CSRD not only necessitates transparency through public disclosure but also mandates independent auditing. This highlights the importance of substantiating claims regarding ESG metrics and sustainability performance with reliable data. CSRD is a mandatory directive for all large European companies and those listed on EU-regulated markets, including EU subsidiaries of non-EU parent companies.

This directive also extends to listed SMEs, excluding only "micro" companies with less than 10 employees or below EUR 20 million in turnover from the sustainability reporting requirement. The scope of CSRD covers organizations with over EUR 20 million in total assets, EUR 40 million in net turnover, and/or 250+ employees. These entities are referred to as 'large undertakings' within the CSRD framework, encompassing both EU companies and EU subsidiaries of non-EU companies.

In addition, non-European companies with an annual net turnover of EUR 150 million in the EU and at least one EU subsidiary or branch will be required to comply with sustainability reporting from 2028 onwards.

Approximately 49,000 organizations are expected to participate in CSRD's reporting requirements once fully implemented. Embracing sustainability practices and reporting will enable compliance and contribute to a more responsible and transparent business landscape. Please, note that the Non-Financial Reporting Directive (NFRD) introduced important rules currently in effect. These rules will remain in force until companies are required to adhere to the new rules of the CSRD.

CSRD Important Dates:

• By August 30, 2023: EU Commission adopts the initial set of reporting standards.
• By the end of 2023: Standards are signed off by the Council and European Parliament, becoming effective.
• Starting from 2024: Phased implementation of requirements after EU law is incorporated into the national law of EU member states.
• January 1, 2024: The law requires companies already subject to the NFRD to report on 2024 data (reporting year 2025).
• January 1, 2025: The law requires other large companies not previously subject to the NFRD to start reporting.
• January 1, 2026: The law requires SMEs to initiate their reporting.
• January 1, 2028: The law applies CSRD to third-country companies.
  

Step 4: Learning to navigate the many sustainability reporting standards for your ESG report

It can be challenging for organizations to navigate the complexity of sustainability reporting standards for their ESG report, especially since many standards are still half-written with many aspects still lacking. Yes, it is confusing, but as these standards are further developed, things will become easier and more streamlined.

ESG frameworks vs. standards vs. protocols

Let's start with the difference between an ESG framework, a standard, and a protocol because this is not completely obvious at first glance.

What is an ESG framework?

ESG frameworks provide organizations with guidelines to identify, assess, and report on sustainability issues. These frameworks allow companies to benchmark their performance, communicate progress with stakeholders, and align with industry peers and global best practices.

Well-known frameworks include CDP (Carbon Disclosure Project), Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-related Financial Disclosures (TCFD). While each framework has a unique focus, their common goal is to promote transparency, comparability, and accountability in sustainability reporting.

What is an ESG standard?

ESG Standards serve as detailed guidelines that expand upon the principles outlined by frameworks. They provide specific requirements, metrics, and indicators for reporting on sustainability topics. By establishing a common language and set of metrics, standards promote comparability across sectors and organizations.

These standards can vary depending on the framework and industry sector. For instance, the Global Reporting Initiative (GRI) offers universal standards that apply to all organizations and topic-specific standards that address industry-related concerns. Conversely, the Sustainability Accounting Standards Board (SASB) focuses on industry-specific standards that capture financially material environmental, social, and governance (ESG) issues within specific sectors.

What is an ESG protocol?

Protocols play a crucial role in helping organizations measure, monitor, and report their sustainability performance. These tools, methodologies, and instructions are aligned with chosen frameworks and standards. They provide detailed guidance on data collection, calculation, and disclosure, ensuring consistency and accuracy.

Protocols cover various aspects of sustainability reporting, such as greenhouse gas emissions, water usage, waste management, energy consumption, and plastic waste. For instance, universally accepted protocols like the GHG Protocol offer measurement and reporting methodologies for GHG emissions across different frameworks.

While some protocols are applicable across industries, others are specific to certain frameworks or sectors. For instance, the Global Reporting Initiative (GRI) incorporates its own set of protocols within its standards.

Order of application: ESG frameworks, standards, and protocols

Integrating sustainability reporting with frameworks, standards, and protocols is an iterative and interconnected process. To grasp their interplay, consider the following steps:

1. Framework Selection: Start by choosing a suitable sustainability reporting framework that aligns with your strategic goals, stakeholder expectations, and industry context.

2. Standard Identification: Within the chosen framework, identify the relevant standards, both universal and industry-specific, to capture and report material sustainability issues.

3. Protocol Application: Apply the appropriate protocols to measure, monitor, and report your sustainability performance in line with the selected framework and standards.

   
   

Step 5: which ESG reporting standard should I use?

So, which ESG standard should you use? While the EU CSRD (Corporate Sustainability Reporting Directive) mandates comprehensive reporting on sustainability for companies, the ESRS (Environmental, Social, and Governance Reporting Standards) serve as supplementary guidelines aligning with the CSRD. The ESRS provides specific instructions on data collection, reporting, and adopting a double materiality approach (explained further in this article), considering both financial implications and environmental/social impacts.

ESRS is being developed to consolidate vital data and address all necessary stakeholders, bringing it closer to the GRI standard. If you're already reporting using GRI, ESRS offers an excellent opportunity to build on that foundation and bridge the gap between the two. However, it should be noted that as of the date of the publication of this article, the ESRS standards have not been fully completed.

Many different ESG reporting frameworks have emerged to serve diverse stakeholders. GRI presents the oldest and most popular standard (even within the EU) and addresses a wide range of stakeholders, and can be used by companies of any size. On the other hand, SASB and TCFD focus specifically on investors and provide ESG data that is easily comparable across sectors. Many companies find that combining GRI and SASB satisfies both target audiences, especially multinational corporations. However, this might not always meet EU laws and regulations – especially if you fall under the CSRD regulations.

For EU companies starting reporting from scratch in 2023, it's wise to immediately consider the ESRS framework to ensure compliance with CSRD and stay ahead of the game. However, GRI and EFRAG collaborate, and the aim is to align their standards (GRI & ESRS).

It is also important to remember that sustainability reporting standards are constantly evolving, and companies should ensure they remain up to date with developments. In addition, there can be significant differences between different frameworks, and companies should be aware of these when comparing them.

Some more notes on the European ESG reporting standard - ESRS

The EFRAG board approved the first set of ESRS on November 15, 2022. The Commission is expected to adopt these standards by the summer of 2023.

The initial ESRS set consists of 12 standards, aligned with the CSRD proposal, that address environmental, social, and governance aspects. These standards encompass both cross-cutting and topical areas. Furthermore, the architecture of the standards includes plans for sector-specific and SME-focused standards, which are currently not part of the public consultation.

Draft ESRS 1 General requirements ESRS 2 General disclosures All of the ESRS drafts.

These ESRS prioritize addressing climate change by requiring companies to disclose information on governance, strategy, impact management, risk and opportunity management, and climate change metrics and targets. This holds true regardless of the companies' judgment of materiality. Sustainability information reported in the management report must undergo limited assurance by a third party. Furthermore, the CSRD and ESRS introduce significant components such as double materiality (explained further down), the inclusion of prospective information, information about the value chain, and the concept of sustainability due diligence.

Sustainability due diligence is closely related to the forthcoming Corporate Sustainability Due Diligence Directive (CS3D), which aims to foster responsible corporate behavior across global value chains.

GRI reporting standard: What it is and how to use it for ESG reporting

GRI reporting standard: What it is and how to use it for ESG reporting

The Global Reporting Initiative (GRI) is an international organization that develops and maintains the GRI Standards, the most widely used framework for sustainability reporting. The GRI standards are designed to enable organizations to assess their performance and disclose information about how they tackle environmental, social, and governance (ESG) issues.

It should be noted that the GRI standards are striving to align with the European Sustainability Reporting Standards (ESRS). The GRI Standards form a modular system of interconnected standards that enable organizations to transparently report the impacts of their activities in a structured manner.

Comprising the GRI Universal Standards, GRI Sector Standards (not yet fully completed), and GRI Topic Standards, this framework ensures comprehensive and consistent reporting.

The Universal Standards, including GRI 1: Foundation 2021, GRI 2: General Disclosures 2021, and GRI 3: Material Topics 2021, provide essential guidance and requirements for all organizations to comply.

The Sector Standards enhance reporting quality, completeness, and consistency by addressing sector-specific impacts on the economy, environment, people, and human rights. The Sector Standards are not yet all completed, so if you are desperately looking for your sector and can't find it – it probably isn't there yet.

By utilizing the relevant Topic Standards, organizations select and report on material topics identified through GRI 3 and applicable Sector Standards. These Topic Standards contain disclosures enabling organizations to convey their impacts on specific topics effectively. The GRI Standards facilitate transparent and comprehensive reporting for organizations across various sectors.

Step 6: Understanding the basics of the ESG reporting process

To comply with EU standards for ESG reporting, companies should follow some key steps when writing an ESG report. This is a very broad overview to get a rough understanding of the general process.

Especially the data collection can prove to be tricky, especially if you fall under the Corporate Sustainability Reporting Directive (CSRD) regulations and must report greenhouse gas (GHG) emissions in your whole value chain (Scope 3), but more about that in another article. Let's first take a look at the main steps.

Let's assume you are an EU entity that will soon fall under the CSRD regulation. You have decided that the ESRS standards are the right ones for you. You might decide on GRI for specific reasons. This selection is something you will have to carefully discuss and decide internally. Here are the following steps:

1. The first step is to identify the key stakeholders of the company and determine their interests in terms of ESG data. This will enable companies to focus on providing relevant information for these stakeholders and ensure that they report on all applicable areas that are important to them.

2. The second step is to gather data relevant to ESG reporting. This should include information such as the company's energy consumption, waste management practices, supplier sustainability policies, and other relevant data. Companies must also consider their international operations when gathering data for the report.

3. The third step is to analyze the gathered data to identify areas where the company has made progress and where there is still room for improvement. This analysis should be included in the ESG report and should clearly illustrate the company's performance on each of the identified ESG topics.

4. The fourth step is to communicate the results of the analysis to stakeholders through a summary of key findings, examples of best practices, and actionable recommendations. Companies should also include a detailed description of the methodology used to collect and analyze the data.

5. Finally, companies should ensure that their ESG reports are published in an accessible format and available on their website or other appropriate channels. This will allow stakeholders to easily access the information they need and have more confidence in the company's commitment to sustainability.

   
   

Materiality and Double Materiality Explained in under 60s!

Step 7: Conducting a materiality assessment for your ESG reporting

In the European Union, a materiality assessment is defined as "the process of identifying and assessing the topics relevant to an organization's business and its stakeholders. Once these topics have been identified, they must be prioritized and addressed in the organization's ESG reports. In our experience, the choice of wording – "materiality" has been somewhat unfortunate and has led to frequent misunderstandings. Basically, it's just: "Which topics are the most important for your ESG report." It's not more complicated than that.

To effectively conduct a materiality assessment, follow these steps:

1. Identify relevant stakeholders.
2. Engage with stakeholders to understand their values and sustainability goals for the company.
3. Identify key issues to address in the assessment.
4. Design a thoughtfully constructed survey.
5. Request stakeholders to rank their values by importance.
6. Analyze the received information.
7. Compare assessment results with competitors.

Defining the goals of a materiality assessment is an essential initial step; otherwise, you risk missing out on valuable insights from the assessment.

Once the goals are defined, it is time to collect data. This can be done through, for example, interviews or questionnaires. Well-crafted questions are necessary to elicit honest answers. The quality of information relies on the integrity of the responses.

It can be valuable to create a so-called "materiality matrix" or "materiality map" to get some sense out of the answers and the collected data. A materiality matrix is a simple plot of two axes: one axis shows the hierarchy of issues, and the second shows what is most relevant to stakeholders or can impact overall business performance and success.

Don't miss our extensive whitepaper on materiality assessment: A Step-by-Step Guide to Materiality Assessment

What is Double Materiality?

The CSRD introduces the concept of 'double materiality.' This means that companies must report not only the financial risks posed by sustainability issues (financial materiality) but also their impact on people and the environment (impact materiality).

Investors are increasingly interested in both aspects. They want to understand the risks to their investments, and the sustainability reporting requirements ensure investor protection. Moreover, investors seek information on how their investments affect society and the environment, driven by the growing demand for sustainable investment products and regulatory obligations, such as the EU's Sustainable Finance Disclosure Regulation.

Additionally, stakeholders such as civil society organizations and trade unions expect transparent and objective disclosure about a company's impact on important issues like biodiversity, climate change, and human rights. Companies can mitigate the risk of ' greenwashing ' by implementing clear and consistent impact-materiality disclosure requirements and obtaining external certification from auditors or other assurance providers.

Step 8 – Understanding ESG data collection

Effective reporting relies on reliable ESG data. Various systems and tools automate and streamline this process, but their efficiency hinges on accurate data input. To meet legal requirements and reporting goals, complete and reliable ESG data is indispensable.

Sometimes, you will have access to pristine primary data. Still, sometimes, you will have to fall back to secondary data such as industry averages, particularly when it comes to the greenhouse gas emissions (GHG) in the value chain (also known as "Scope 3").

iimpcoll is certified GHG Protocol Scope 3 in the value chain, and we are happy to help. We will also shortly publish more free tutorials on dealing with many of these issues, reducing your need for expensive consultations.

To effectively collect and report ESG data, there's no one-size-fits-all approach. As company leaders, you should consider the following steps when evaluating the best strategy for your organization:

1. Understand your organization's requirements and goals.
2. Determine responsibility and accountability for ESG and sustainability strategies and reporting.
3. Assess the reliability and availability of required data.
4. Identify and address any data gaps.
5. Establish a sustainable and repeatable process, along with internal controls, for efficient data collection and remediation of quality issues.
6. Store and maintain ESG data in compliance with regulatory requirements and company policies.

Step 9 – writing the final ESG report

There are many available ESG reporting software on the market with different features and focal points. You might not even need software – maybe a simple Excel sheet might do the trick. It entirely depends on your organization's complexity and your goals.

Don't miss our free whitepaper on ESG software selection: An Independent Guide to ESG/CSRD Software Selection

Step 10: Understanding audits – an integral part of CSRD compliance requirements

One of the key components to staying on top of ESG compliance requirements is conducting an ESG audit. An ESG audit is a comprehensive assessment of how well a company meets sustainability objectives and complies with relevant regulations. The audit aims to identify areas where improvements can be made and ensure standards are met.

The audit should also evaluate the effectiveness of internal systems and processes that are in place to support a company's compliance efforts. The process for an ESG audit begins with a thorough review of existing policies and procedures. This includes reviewing documents such as the company's code of conduct, environmental policy, and other relevant guidelines. It is also important to evaluate whether adequate systems are in place to support compliance efforts. Once this initial review is complete, a more in-depth assessment of the company's operations can begin. The next step in the ESG audit process is to analyze the data that has been collected and identify areas where improvements can be made. This includes evaluating environmental impacts, such as energy usage and water consumption, and analyzing social issues, such as labor practices and human rights. Once the analysis is complete, a report can be generated which outlines the areas of non-compliance and provides recommendations for improvement.

Finally, it is vital to ensure that any changes or updates are implemented to remain compliant with ESG regulations. This includes developing policies and procedures to ensure compliance, providing training for staff members, and conducting regular internal audits. Through this process, companies can be confident that they meet the latest ESG requirements and protect their reputation as a socially responsible organization.

Last but not least:

"Don't panic." - Douglas Adams

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