Why ESG Reporting Matters More Than Ever - But Is It Right for Your Brand?
by Leigh Anne Bishop
How can companies demonstrate a commitment to all stakeholders – customers, employees, suppliers, and communities? One valuable approach: ESG or sustainability reporting.
Annual reports have long been a staple of financial compliance for companies. In an effort to improve transparency with stakeholders, most publicly-listed organizations share everything from balance sheets to profit and loss statements.
But over the last 15 years, we’ve seen a significant uptick in reporting beyond just financials. More and more companies want to share updates with their stakeholders in areas such as occupational health and safety, environmental conservation, community involvement, and employee development. These sustainability reports – also commonly referred to as environmental, social and governance (ESG) reports – can help stakeholders better understand a company's plan for creating value long-term.
Most recently, in August 2019, Business Roundtable CEOs challenged the long-held view that the purpose of companies is to increase value for shareholders. They argue that companies must demonstrate a commitment to all stakeholders – customers, employees, suppliers, and communities.
One of the best ways to do this? ESG or sustainability reporting. But is sustainability reporting for everyone?
The answer isn't black and white. In this article, we'll help you determine if sustainability reporting is appropriate for your brand. We'll address the following questions:
- Why has sustainability reporting increased?
- What is sustainability reporting?
- How are businesses impacted?
- What's the difference between sustainability reports and annual reports?
- What are the benefits of sustainability reporting?
- How can businesses report on sustainability?
Let's dive in!
A KPMG Survey of Corporate Responsibility Reporting determined that 93% of the world’s largest 250 corporations and 78% of the S&P 500 reported on their sustainability performance in addition to their financials. So why have major companies bought into the trend of reporting?
For the answer, we have to go back to 2015. At a historic United Nations (UN) Summit, countries around the world adopted the 17 Sustainable Development Goals (SDGs) of the 2030 Agenda for Sustainable Development. This was a game-changer that demonstrated a global commitment to sustainability at the political, business, and community levels.While many countries and organizations had previously demonstrated a commitment to sustainability (the Global Reporting Initiative has been around since 1997 – more on that below), the UN agenda formalized global objectives. It also called on developed countries and established businesses to hold themselves accountable.
The biggest companies (most with a global presence) are already doing it. And more businesses outside of the S&P 500 are getting on board.
A sustainability report is "a report published by a company or organization about the economic, environmental and social impacts caused by its everyday activities. A sustainability report also presents the organization's values and governance model, and demonstrates the link between its strategy and its commitment to a sustainable global economy" (Global Reporting Initiative).
Sustainability reporting is all about stewardship for the next generation. The UN identifies three elements that impact sustainability: economic growth, social inclusion, and environmental protection.
It's important for businesses to consider how their products and operations impact these three areas. For years, the Global Reporting Initiative (GRI) has been a leader in developing standards for these reports.
Sustainability reporting, as the GRI points out, "can be considered as synonymous with other terms for non-financial reporting; triple bottom line reporting, corporate social responsibility (CSR) reporting, and more. It is also an intrinsic element of integrated reporting; a more recent development that combines the analysis of financial and non-financial performance."
It's also worth mentioning the growing emphasis on ESG (environmental, social and governance) reporting. Like some of the previously mentioned reporting terms, ESG falls under the umbrella of sustainability reporting. Core to all sustainability reports: a forward-thinking emphasis and company information that extends beyond financials.
The UN Sustainable Development Goals and the growing stakeholder expectations for transparency on economic, social, and environmental issues impact businesses of all sizes in all sectors.
Businesses have always had stakeholders – or else they wouldn't exist. But now, the stakes are higher. Many customers, investors, and other stakeholders expect transparency beyond financials. So while it's not required by law to report on sustainability, it's important from a brand equity perspective (and many businesses have chosen to align with organizations like Business for 2030 in response to the UN goals).
According to a 2017 trends report by the Center for Sustainability & Excellence (CSE), the sectors with the highest reporting presence in North America include:
- Energy Utilities
- Financial Services
- Food and Beverage
We’ve helped produce sustainability reports for several companies in these sectors (for example, Transocean and Marathon Oil). Although these sectors don’t represent North America’s entire economic makeup, they are some of the most advanced and mature sectors when it comes to sustainability reporting.
Within these sectors, there are several key sustainability associations: the IPIECA (International Petroleum Industry Environmental Conservation Association), GRI (Global Reporting Initiative), the EEI (Edison Electric Institute), and the SASB (Sustainability Accounting Standards Board).
Some associations have defined reporting standards, but they vary from one entity to another. If your company decides to issue a sustainability report, you’ll have to determine with which association (if any) you’ll align.
Sustainability reports differ from annual reports in several ways. The disclosure of financial information by publicly traded companies is required by law and enforced by the SEC in Form 10-K (the annual report is a pared-down, visual representation of most of this information). In contrast, sustainability reporting is voluntary.
Another difference is the type of information the reports provide to stakeholders. For example, sustainability reports focus on direct and indirect economic, environmental and social influences. But annual reports concentrate mostly on companies’ corporate outcomes and financials.
Sustainability reports also appeal to a wider target audience. Aside from shareholders and investors, they also are important to employees, customers and communities. The areas of focus from the UN Agenda are broad, and emphasize "inequalities, economic growth, decent jobs, cities and human settlements, industrialization, oceans, ecosystems, energy, climate change, sustainable consumption and production, peace and justice."
- Required by law
- Focus on corporate outcomes and financials
- Audience is typically shareholders and investors
- Focus on direct and indirect economic, environmental, and social influences
- Appeal to a wider audience: shareholders, investors, employees, customers, and local communities
- Backed by data, case studies, and stakeholder stories
Brands are crafting powerful narratives out of these reports, backed by data, case studies, and stakeholder stories.
For example, the sustainability report we developed for Transocean is more than just data and company updates. Our goal was to craft a story that demonstrated Transocean's boundless brand and commitment to sustainability.
What are the Benefits of Sustainability Reporting?
While the UN Sustainable Development Goals aren't legally binding, more and more businesses are taking ownership and conducting their own reporting.
Sustainability reporting is an additional way brands can engage with stakeholders and build trust by sharing how they are stewarding resources and taking action on social and environmental issues.
Sustainability reporting is one component of cause branding, or "a potentially profit-making initiative by a for-profit company or brand to raise awareness, money, or consumer engagement in a social or environmental issue" (Citizen Polity).
In a 2017 CONE CSR Study, 87% of Americans said they’d purchase a product or service because it advocated an issue they cared about, while 76% said they’d refuse to purchase if a company didn’t support their beliefs. And 89% said they would switch brands to one associated with a good cause despite similar price and quality.
If stakeholders (investors, employees, and local communities – not just customers) trust your brand because of your transparency, you’ll be better positioned to grow and future-proof your business.
And often, brands that publish reports can better position themselves as industry leaders by demonstrating they have forward-thinking management that may mitigate risk for investors.
The hard truth is that not all information issued in sustainability reports will be positive. It might even have a short-term negative impact on your brand. But the trust that you can build by being transparent and by demonstrating a commitment to stewardship can pay future dividends.
The GRI notes that "Sustainability reporting can help organizations to measure, understand and communicate their economic, environmental, social and governance performance, and then set goals, and manage change more effectively. A sustainability report is the key platform for communicating sustainability performance and impacts – whether positive or negative."
The key is trust – either you have it or you don't with stakeholders. It's earned – not given – and sustainability reports are one way for brands to improve transparency and identify opportunities for future growth.
How Can Businesses Report on Sustainability?
If your company has decided that sustainability reporting is right for you, the next step is to determine the appropriate medium: website, print, or both.
The 2018 Si2 Report found that 68% of sustainability reports used "a discrete, downloadable and year-specific report, while 9% offered a report only in a web format. But it's not a mutually exclusive scenario: "Most companies actually use some combination of the two, with both static material (full reports, summary brochures, performance data tables, or a GRI index) and web-based presentations" (Si2 Report).
In 2017, just 2.8% of companies in the S&P 500 issued an integrated report, according to a 2018 report from the Sustainable Investments Institute. But that's double the number from 2013, and it will likely continue to increase as companies consider overall value creation and sustainability as a factor in investment decisions (Harvard University Corporate Law).
We've found it's usually better to develop both static and web-based materials. The static material captures a snapshot that can be archived and referenced; the web material can present the content in a more engaging, interactive, and often more thorough way (this was our strategy when we helped Crestwood LP launch its inaugural sustainability report).
- Can be archived and referenced
- Can be mailed to stakeholders
- Can be downloaded and printed
- Limited information
- Can be continually updated
- Can present information in a more engaging, interactive, and more thorough way
- Can host unlimited pages
Different mediums may be better for different companies. The key is to think of your audience and your brand.
- Does your audience primarily intake information online?
- Is part of your sustainability effort a commitment to going paperless?
- Is it important for your company to have static, archivable reports?
Overall, digital sustainability reporting is gaining traction and could become a mainstay format for evidence-based storytelling. Compelling stories with solid data reinforce a brand's commitment to the associations that set industry standards. And signed agreements and memberships are evidence that a company is truly accountable.
If you can extract a meaningful narrative from your efforts and demonstrate consistency, your brand will be well-placed to resonate with stakeholders and inspire belief.
Our ESG Projects
Check out a few ESG reports we've worked on:
Crestwood Equity Partners LP
A Few Extra Insights
Hopefully, we've helped shed some light on important considerations as you determine if a sustainability report is right for your brand. If you might need help with a sustainability report, we'd love to chat. If you want to learn more about cause branding, check out this episode of our Solving for B° podcast.