Top 6 Reasons Why Companies Create an ESG Report
Our agency is often asked “what is the value of ESG reporting?” and “why do companies create an ESG report?” We have designed more than 50 ESG and sustainability reports, and we have learned a lot from our experience. Here are the top reasons why companies create an ESG report.
The value of ESG reporting
ESG (environmental, social, governance) reports outline how firms manage corporate reputation, reduce risk, identify opportunities and enhance company culture. All of these add value to a company but they are creating ESG reports to meet increasing investor and market expectations.
Market expectations are driving companies to share how they are investing sustainably. Key drivers are governmental incentives and consumer behavior trends that value sustainability.
These market expectations have translated into a growing request from investors for ESG data. ESG issues have become much more important for long-term investors, according to a recent study by the Harvard Business Review.
Investors and asset owners, such as pension funds, have been considering sustainability criteria for decades. Recent trends show that more investors are taking meaningful action to integrate sustainability issues into their investing criteria.
To prepare for a shift in investment focus towards ESG, make sure to integrate it into your business. The next step is to ensure that you are communicating your ESG efforts in the most effective way possible.
Top 6 reasons why companies create an ESG report
Reason 1: Systematically share valuable information
ESG reports enable companies to engage their intended stakeholders and communicate their sustainability performance, impacts, and risks. Organizations can use reporting frameworks to share their sustainability initiatives with a large audience. Typically, they follow at least one or two of the ESG reporting frameworks.
Reason 2: Gain transparency & promote accountability
ESG reports can help raise awareness of sustainability issues, inspire action, and encourage better conversation. Companies need to provide a comprehensive report on the environmental impacts of their products and their sustainability practices.
ESG reporting can enhance a company’s license to operate. Therefore, it makes it easier to accomplish business objectives and respond to crisis scenarios.
Reason 3: Drive meaningful ESG progress internally and industry wide
Companies need to recognize and address the impacts of sustainability in their fundamental business models. This reflects a company’s commitment to creating a high-performing, purpose-driven workforce and an inclusive culture.
Reason 4: Improve efficiency and identify market opportunities
More investors are linking better environmental, social, and governance performance to financial performance. Sustainability reporting helps companies create value by identifying opportunities to minimize operating costs and maximize returns on capital.
Unmet needs, underserved customers, and potential strategic relationships can be exposed by shifts in market and non-market conditions.
Reason 5: Identify and mitigate future risks
An ESG report has become an important tool for better risk management. The document allows companies to thoroughly assess their sustainable challenges from multiple angles.
By viewing problems from different perspectives, companies can provide insights and find new ways to improve their sustainability practices. Ultimately this leads to lower risks due to supply line interruptions.
In addition, ESG reporting helps identify immediate and long-term risks (i.e. material and labor availability as well as evolving regulations) depending on the industry and business model.
Reason 6: Provide a critical competitive advantage
It is clear that having an accurate ESG report is necessary for successful business performance. Customers are becoming more environmentally aware, and having an ESG report will help companies create a positive brand image. A well-crafted ESG report can improve ESG rankings, making it more likely for companies to attract additional investment.
Improving ESG ratings and rankings
There are many aspects to a company achieving favorable ESG ratings and rankings. A variety of reasons are rooted in material bottom line improvements as well as societal improvements.
A well-designed ESG report is a contributing factor to a company’s ESG ranking success.
How to prepare an ESG report
If you are interested in creating an inaugural report or seeking ways to improve your report effectiveness, seek advice from experts. These experts can help improve the outcome and ultimate success of your report.
They can help you:
- Lead your company through the various steps in the process
- Help your company position and convey your sustainability approach, accomplishments and aspirations with greater impact and transparency
- Improve your stakeholder engagement and reach to a broader global audience
Don’t know how to get started? ESG reports are an important tool for measuring and communicating the environmental, social, and governance performance of companies. To prepare an effective ESG report, it is critical to understand the process and to partner with the right people. Learn how to prepare an effective ESG Report by reading The 7-Step ESG Reporting Process.
Designing your next ESG Report?
ESG reports are important business communications tools. They help your company manage risk, identify potential problems, improve credibility, and address environmental impact. Ultimately, your ESG report should illustrate how your company creates value for all stakeholders.
The process of creating a successful ESG report hinges on the science and art of solid, professional experience. Crafted properly, they can be an effective tool in improving your ESG ratings and rankings. Learn more about OBATA’s ESG Reporting capabilities.