On March 6, 2024, the SEC issued a final rule requiring registrants to disclose climate-related information in their registration statements and annual reports. See additional details in the alert, SEC Finalizes Climate Disclosure Rule, published March 12, 2024.
Without globally accepted ESG reporting standards, organizations face challenges. Producing ESG reporting that meets the needs of varied audiences and also works toward improved business outcomes can be confusing with assessments, disclosures, and standards constantly evolving as organizations respond to regulatory and public input.
Below is a breakdown on how to get started with ESG reporting and an update on ESG standards and criteria.
Organizations produce ESG reports or disclose specific metrics for many reasons. Clearly stated objectives for ESG reporting can help meet the informational needs of varied audience types. These objectives can focus on a singular requirement or be more comprehensive and include data for an entire ESG reporting program or strategy.
Noting that reporting objectives can evolve over time is also important. As processes for data collection mature and information requirements are refined, continued improvement remains an integral part of the reporting cycle. A multiphase approach to ESG standards can meet both short- and long-term objectives.
Public companies or related subsidiaries operating in certain jurisdictions should stay privy to the evolving regulatory environment to comply with emerging requirements.
For example, the US Financial Stability Oversight Council identified climate change as an increasing threat to US financial stability, and the Security and Exchange Commission (SEC) issued a three-rule proposal that would help facilitate comparable ESG disclosures so that statements made to investors wouldn’t be misleading. Municipalities have also begun to develop green investment policies.
Individuals providing legal, compliance, or risk management support can advise on how to adhere to ESG-related regulatory requirements. These teams can also provide insight into the resources required to comply with ESG-related policies.
Comprehensive ESG reporting objectives are common in values-based organizations that aim to keep up with compliance requirements, while also striving for ESG reporting that ultimately reflects their values.
Integrated reporting on ESG-related activities across the organization is often built alongside an ESG strategy and governance framework. Organizations may initially hear interest in exploring comprehensive ESG reporting from board members or their audit committees.
For either objective, ESG reporting is an important opportunity for an organization to control its own story. Responding ad hoc to external influences isn’t sustainable in the long term. Keeping strategic business key performance indicators (KPIs) central in reporting can help make sure the data provided remains useful to the organization.
Layering unintegrated initiatives into your organization can result in operational inefficiencies, decreased impact, or failure to reach your desired outcome.
With clear ESG reporting objectives, an ESG scan can help you identify what’s already taking place within your organization, which can help you:
A clear objective will also help to refine your environmental scan to make sure that relevant people, processes, and systems are captured. This will ultimately help you align resources and investments towards accomplishing your desired outcome.
Aligning with relevant ESG reporting standards can help an organization focus its report on relevant information. Whether your objective is focused on a singular compliance requirement or a comprehensive program, determining which ESG standards to follow can make alignment the most daunting phase of initial ESG reporting.
Frameworks provide a set of concepts for how information is structured, prepared, and what broad topics are addressed.
Standards are a set of specific guidance for what should be disclosed. Often, organizations use complementary frameworks and standards to build ESG reports.
Below is a table of the some common ESG standards and criteria, where disclosure frameworks and standards can be compared across the following six organizations.
Sustainability Accounting Standards Board (SASB) standards are now the property of the International Financial Reporting Standards (IFRS) Foundation’s ISSB, but they remain a widely used set of ESG standards.
Apply your objective, and results from the ESG scan, to address the following questions and refine your approach to the ESG report.
This group of further questions will help address your motivating factors. While much of this will have already been considered when establishing your objectives, it’s helpful to revisit motivating factors.
Aim to refine the target audience of your ESG reporting efforts to help the right information is reach the right people in the right way.
Some additional questions could include the following.
Considerations in this category drill into the ability of your organization to complete the work. Other questions to ask could include:
It’s important that standards and frameworks try to stay industry-relevant, yet there will be instances where the information requested doesn’t relate to your organization. When this happens, you may choose to omit that metric or modify the metric to accurately reflect your business state.
Where metrics are omitted or modified, provide additional context into what changed that could increase transparency and lend credibility to your report.
Additionally, your organization may not have processes in place for collecting quantitative data. When this happens, many organizations provide qualitative data as context for the metric. This could also include the steps in place to provide quantitative data in the future.
Organizations can use several types of reporting methods to share ESG information. Data tables, dashboards, integrated filings, and stand-alone reports are all widely accepted report formats.
For more information on ESG reporting, contact your Moss Adams professional.