Ideological shifts in business demand effective ESG reporting Climate change, biodiversity, customer relations, supply chains, board management practices, data, and security…these all fall under the ESG heading.
Environmental, Social, and Governance (ESG) have become the language of capital markets, expanding market value by maintaining value for future generations. According to a recent Morgan Stanley report , 88% of investors globally express interest in sustainable investing, with interest levels in the U.S. and Europe largely unchanged since late 2023.
On top of this, another report from PwC notes that 71% of investors believe companies should integrate ESG and sustainability directly into their corporate strategy.
This increase in investor attention comes alongside an ideological shift in business – sustainability and citizenship are no longer seen as philanthropic activities, but rather, vital for business success. As such, they require effective governance to mitigate external business risk. Business leaders must sit up, take note, and effectively respond using ESG reporting.
With this in mind, see the below breakdown from Green Business Benchmark on what ESG reporting is, why it is important, and how to get started. Use the links below to navigate through this article.
What is ESG reporting? Why ESG reporting is important How to use ESG reporting to devise an effective ESG strategy How ESG reporting differs from sustainability reporting ESG reporting requirements, standards, and frameworks How to improve your ESG sustainability reporting and score What is ESG reporting? ESG reporting is the disclosure of data covering business operations related to the environmental, social, and governance aspects of a business.
By disclosing this information in a report, a company’s progress related to these three fields can be examined against benchmarks and targets. An ESG report is designed to provide full transparency over an organization’s environmental, social, and governance impact across a multitude of stakeholders, including investors, employees, and customers.
What is ESG risk? Think of ESG reporting as a form of risk management addressing business, sustainability, and social issues. Examples of ESG-related risks include:
Environmental : Climate change, greenhouse gas emissions (GHG), deforestation, biodiversity, waster, waste, and pollution.Social : Customer relations, employee relations, labor, employee wellbeing, community relations, health and safety, supply chains, human rights, and work-life balance.Governance : Board management practices, succession planning, equity and inclusion, diversity, compensation, regulatory compliance, fraud, data, security, and corruption.These ESG risks are stated to cause material, financial and reputational harm to a business. Failing to report and manage ESG-related issues is risky business that could result in an ESG-related incident or controversy.
Understanding the ESG concept: Why is ESG reporting important? To fully understand the importance of ESG reporting, you must first understand the importance of ESG in a general sense.
ESG gained significant world attention following the publication of the report Who Cares Wins: Connecting Financial Markets to a Changing World .
This report saw its roots in Socially Responsible Investing (SRI), dating back several decades . Evolving from SRI, in 2004, UN Secretary Kofi Annan asked major financial institutions to partner with the UN and the International Finance Corporation. The aim of this partnership was to identify ways to integrate environmental, social, and governance concerns into capital markets. The resulting Who Cares Wins report was published, outlining the concept of ESG and showcasing how ESG investments made good business sense.
Since the publication of this report, there has been a clear pivot in capital markets with the recognition that environmental and social issues directly impact an organization’s bottom line.
For instance, research shows that companies experiencing high to severe ESG failings lost, on average, ~6% of their market capitalization. Yet, note that this is an average figure. Losses can be far greater, as we see in the below example.
ESG failings can cause disastrous PR crises
To exemplify this point, we turn to a real world example. The multinational specialty pharmaceutical company, Valeant Pharmaceuticals , suffered severe consequences due to improper governance. The business misled investors by improperly accounting for revenue from mail orders. Plus, the company was found guilty of aggressive price hikes for a single diabetes drug.
This governance failure caused a 90% loss in the brand’s market value. The company also faced penalties and settlement claims, and was forced to dole out $45 million to clear U.S. charges.
Had Valeant Pharmaceuticals followed a proper ESG strategy with clear ESG reporting, they would have been able to mitigate this controversy by implementing better business practices.
Why is ESG reporting important? ESG reporting is the documentation side of ESG. In this next section we list the benefits of this documentation to communicate why ESG reporting is important.
ESG reporting creates transparency
Understanding the importance of ESG reporting requires a mindset shift, one that doesn’t consider ESG regulation as a burden, but rather as a means of transparency. Transparency is a tool to unlock capital and create solutions for the major global challenges organizations face today (e.g. climate change, equality, and data security).
Transparency also encourages accountability, which is essential for collaboration and the development of actionable solutions. Organizations can track progress, set benchmarks, and communicate when their ESG goals have been met.
ESG reporting attracts investors and financing
Increasingly, investors and lenders will use the transparency given by an ESG report to assess a firm’s risk exposure and determine its possible future financial performance.
To demonstrate this investor shift, we turn to reports published by the Principles for Responsible Investment (PRI). The PRI is a group of investor signatories that began in 2006, supported by the United Nations. The aim was to help investors integrate ESG factors into the investment process; and so the PRI established a set of specific, voluntary, and aspirational principles for investors to follow.
As investor interest in ESG rises, the number of signatories within the PRI follows suit. That is, in 2006 PRI had 63 signatories commanding $6.5 trillion in assets under management (AUM). In 2025, this figure increased to 5,300+ signatures, controlling $128.4 trillion trillion in AUM.
In summary, investors avoid companies that lack ESG reporting, with reduced transparency being a major concern.
ESG reporting meets stakeholder demand
Yet it’s not just investors that demand greater transparency when it comes to environmental and social concerns in business. Consumers are also demanding responsible brands. For instance, a survey from First Insight found consumers, particularly Gen Z, are more willing to support brands with an effective ESG strategy.
62% of Gen Z would prefer to buy from a sustainable brand, and 73% of them are willing to spend up to 10% more for a more sustainable product/service.
And we have a similar scenario when it comes to the employee. Cone Communications found that 76% of millennials consider the sustainability agenda of an employer before making their career choices. As such, reporting ESG will boost an organization’s chances of attracting new talent.
ESG reporting responds to regulation change
Regulatory forces are also applying pressure on companies to produce ESG reports. Proactive and future-focused brands will understand the importance of meeting ESG criteria to respond to the changing business landscape.
As such, it comes with little surprise to learn that 99% of companies in the S&P 500, and 94% of the Russell 1000 companies have already published their annual ESG reports.
Current regulations and policies are leaning toward mandatory reporting on ESG. And the European Green Agreement seems the most ambitious of these regulations.
Between 2000 and 2017, the European Corporate Governance Institution (ECGI) study identified 25 countries that had introduced mandates for firms to disclose ESG information.
Countries included are Australia, China, South Africa, and the United Kingdom. Yet, to date, these mandatory regulations only apply to state-owned companies, large corporations, and listed companies.
Plus, the obligation for companies to report sustainability information is also on the rise. For instance, CSRD in the European Union and SB 253 and SB 261 in California require companies to disclose their GHG emissions as well as any climate risks and opportunities that may influence their business.
How to use ESG reporting to devise an effective ESG strategy Companies need to first set clear targets to reduce environmental, social, and governance risks, and then measure progress and report in a transparent manner.
It’s clear that businesses across the globe have advanced, from simply asking customers to recycle their plastic containers to embedding sustainability into the core of their business. This means creating sustainable practices and processes, developing ethical products, and leading a business strategy developed from a clear ESG strategy.
A good example of a business that’s done this right is Patagonia. Patagonia has a strong ESG score because ESG values have been effectively embedded into the core of Patagonia’s business model. The company urges conscious consumption offering repair services , and using marketing communications to campaign against fast fashion and encourage minimalism.
To devise an effective ESG strategy, like Patagonia, organizations need to:
Use ESG reporting for transparency and accountability, to set benchmarks and targets, and to communicate ESG-related achievements. This means understanding ESG reporting to devise an ESG report, which this article will guide you on. Set actionable initiatives that will support ESG compliance and an organization’s ESG strategy. You can use the Green Business Benchmark to set actionable initiatives to meet ESG demands, supporting your ESG strategy, as we discuss below. Use Green Business Benchmark to support your ESG strategy Your ESG strategy is all about meeting the environmental, social, and governance demands of a business; yet, translating these targets into actionable solutions can be difficult.
That’s where the Green Business Benchmark platform can help.
Think of GBB as an online database of sustainability initiatives. At sign up, organizations can access GBB’s Assessment and Planner where they can choose sustainable solutions to support their ESG strategy and targets.
As such, the GBB platform keeps track of where a company is at supporting the reporting process while also executing real sustainable change.
Many initiatives focus on creating a more sustainable culture, mission, and values to embed sustainability into the core of an organization. From here, it’s easier for businesses to progress toward your ESG-related goals.
Businesses earn GBB sustainability certification levels once they’ve completed the pre-requisites of each level. With each certification, organizations are awarded new promotional clickable seals to share their sustainability vitals - milestones and accomplishments including specific initiatives completed.
You can sign up for the Green Business Benchmark here to create sustainable operations and devise an effective ESG strategy.
With that said, next, let’s take a look at how you can complete your ESG report.
ESG reporting guide: ESG reporting requirements, standards, and frameworks Before deciding what ESG frameworks and standards to use, it’s important to understand the difference between these two terms:
ESG framework : A framework is broad in its scope, giving a set of principles to guide and shape understanding of a certain topic. In this case, we’re referring to ESG. An ESG framework will guide the direction of ESG reporting, but will not provide a methodology for the collection of information, data, or the reporting itself. Frameworks are useful to use alongside ESG standards, or when a well-defined standard does not exist.ESG standard : Standards are specific in their focus. They contain detailed criteria explaining what needs to be reported. In the context of ESG, this means standards dictate how information and data are collected, and how a report needs to be produced (what topics and business areas to include). Standards make frameworks more actionable by ensuring comparable, consistent, and reliable disclosure.ESG frameworks Voluntary disclosure frameworks
Under these frameworks, a company actively discloses its sustainability-related policies, practices, performance data, and information related to ESG criteria. It’s common for these frameworks to take the form of a questionnaire. Below we’ve identified the most popular voluntary disclosure frameworks.
Guidance frameworks
Guidance frameworks provide recommended methodologies and guidance to help companies identify, manage and report on their ESG performance. Below we’ve identified the most popular guidance frameworks.
Third-party aggregators
Third-party aggregators refer to frameworks that assess an organization’s performance based on aggregated, and publicly available data. Data is collected from company-sourced filings, publications, company websites, annual reports, and/or sustainability or CSR reports. Listed below are the main third-party aggregator players.
ESG reporting standards ESG reporting frameworks, standards, and challenges There are currently over 600 ESG (Environmental, Social, Governance) reporting provisions globally. This is creating a complex web of ESG interpretations, muddling what constitutes a sustainable investment versus what does not.
As such, The International Business Council (IBC) and the World Economic Forum published their report: Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation .
This 2020 report attempts to standardize ESG metrics and disclosures for interoperable ESG reporting. Provisional metrics and disclosures were set and put forward at the IBCs 2020 Winter Meeting in Davos . The consultation saw more than 200 companies, investors and other stakeholders provide feedback. This feedback was used to refine ESG indicators.
The chosen ESG metrics were selected for their universality across industries and business models. It must be noted, however, that the metrics chosen do not replace relevant sector-specific and company-specific ESG reporting standards.
Given below is a snapshot of some of the core metrics and disclosures chosen:
Principles of Governance
Setting purpose : This is the company’s stated purpose, as an expression of how a business proposes solutions to economic, environmental, and social issues. A corporate purpose is to create value for all stakeholders.Anti-corruption : The total percentage of governance body members, employees, and business partners who have received training on anti-corruption policies and procedures, broken down by region.Principles of Planet
Greenhouse gas (GHG) emissions : Greenhouse gases are reported in metric tons of carbon dioxide equivalent (tCO2e) GHG Protocol Scope 1 and Scope 2 emissions. Scope 3 emission estimations are also given as appropriate.Land use and ecological sensitivity : This is reported by the number and area (in hectares) of sites owned, leased, or managed in or adjacent to protected areas and/or key biodiversity areas (KBA).Principles of People
Diversity and inclusions (%) : Percentage of employees by employee category defined by age group, gender, and other indicators of diversity (e.g. ethnicity).Wage level (%) : Ratio of the standard entry wage by gender compared to the local minimum wage.The above list gives you an idea of what metrics and disclosures were agreed on. You can access the full report here .
Similarly, reporting organizations including CDP , CDSB , BRI , IIRC , and SASB also presented their “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting ”. This paper is an agreement between the contributing parties, to communicate and collaborate together to produce globally recognized ESG reporting standards.
These efforts are addressing inconsistencies and aim to create a common, global language for ESG. At the moment, there are many guides available.
ESG reporting guide: How to improve your ESG sustainability reporting and score There are major steps you can take to improve the ESG score of your brand including:
Step 1 : Identify the key ESG drivers for your company.Step 2 : Collect plenty of data points.Step 3 : Get guidance from a company that knows ESG.Sep 4 : Integrate ESG into your business strategy.Step 5 : Set ambitious yet reasonable ESG goals.Step 6 : Create an action plan and follow-through on it.ESG reporting is mandatory for the purpose-driven business Creating an ESG report is mandatory for the purpose-driven business. Doing so will boost business transparency, investor demand, sales and attract top talent. You can use your organization’s ESG report as a springboard for devising an effective ESG strategy that will realize the full benefits of ESG compliance.
Before you get started on creating your ESG report, it’s important to decipher the difference between ESG and sustainability reporting. You need to ensure the two are separated in your business. You can then use relevant frameworks and standards to guide your business in creating a comprehensive ESG report, using the 6 steps detailed in this article to improve your ESG score.
We hope this guide has provided you with the information needed to help you get started in producing your ESG report. Green Business Benchmark software along with its sustainability advisory services are ready to assist and help guide you with ESG Reporting.
If you have any questions, or if there’s anything we’ve missed, please do not hesitate to get in touch.
