The Problem with ESG Reporting

ESG reporting plays a crucial role in demonstrating a company’s commitment to environmental, social, and governance factors. However, the current ESG survey process is burdened with challenges that hinder its effectiveness. In this blog, we explore the challenges and importance of ESG surveys, their impact on businesses, and how EthicsGrade aims to simplify answering ESG reporting with its innovative solution, EthicsAnswer.

What is an ESG survey?

ESG surveys are designed to collect data and track progress across environmental, social, and governance aspects: Environmental – natural resource use, carbon emissions, pollution, energy efficiency. Social – workforce, human rights, diversity. Governance – board diversity, board independence, shareholder rights.

The objectives of ESG reporting are to track and demonstrate performance while building your company’s ESG strategy, maturity, and reputation. Companies are now expected to be good stewards of natural and social capital in addition to being good stewards of financial capital. Demonstrating commitment to ESG improvement is done by establishing a robust data collection process and improving each year. Building your company’s strategy can be done by taking the data you collect and presenting it through stories seen in annual reports and ESG surveys.

Why is ESG reporting important?

ESG surveys can help companies identify and mitigate risks, improve business prospects, and achieve sustainable development goals. Learning how to use them to identify and prioritise key ESG risks is imperative. Aside from ESG being a moral imperative, it is also now an ESG strategy. Do not underestimate the importance of ESG. Good risk management and quality data collection on ESG metrics lay the groundwork for business success. ESG surveys matter because they increase business transparency and build consumer trust. Reporting ESG progress satisfies investor needs and data requests while avoiding the risk of fines.

What is the problem/burden of ESG reporting?

There is a lack of ESG standard. All ESG surveys and reporting requests ask different yet similar questions and are asked by unique stakeholders with varying goals, priorities and governance requirements. As it currently stands, there is no single standard for sustainability frameworks and disclosures, not to mention that they often have conflicting requests for data that compete with one another.

The variety of reporting frameworks (TCFD, SASB, GRI, CDP, GRESB, etc.) has created mayhem for organisations trying to get started. Without proper research, the process of determining a reporting framework is near impossible. A rapidly changing landscape doesn’t make the task any easier. The lack of a standard and the political landscape constantly altering, reporting framework rules seem to be ever-evolving. Especially as disclosure becomes regulated, it is a challenge for most organisations to stay on top of changing legislation to avoid penalties and stay in compliance.

Due to uncertainties around reporting framework methodology and issues with data inaccuracy, greenwashing becomes a challenge. The above difficulties often lead to organisations focusing on the bare minimum forms of disclosure and a lack of actionable, progressive goals or sustainability initiatives. Poor quality data or gaps in data leading to unanswered or poorly answered questions is one of the largest challenges most organisations face in ESG reporting.

Knowing who needs to be involved in the process is also resource-heavy. You may find that a lot of the data you must collect for ESG reporting is available in your organisation however it is spread throughout departments. This may result in chasing a few different people to answer one ESG question. The more complex the organisation, the more data managers you will have to involve in your reporting process. ESG data management like manual spreadsheet entry will be at increased risk of legislative, investor, and market liability risk, not to mention productivity loss. Often Heads of ESG must go through time-consuming data collection processes and document the following for each indicator you report on. With ESG reporting often being an annual event the pains do not disappear but instead repeat with all stakeholders. ESG professionals spend an ornament amount of time having to report on what the company has done rather than supporting future maturity.

What is the impact of overburdening companies with ESG surveys?

Overburdening companies with ESG surveys can lead to inconsistencies in reporting. Different surveys may ask for similar information but in different formats or with varying metrics, making it challenging for companies to provide consistent and reliable data. This can result in difficulties for stakeholders, investors, and regulators in comparing and benchmarking companies accurately. Perhaps companies are unable to complete an ESG reporting request, or worse fill it in wrong and lose a client or investor as a result.

Companies need to allocate significant time, financial resources, and personnel to respond to ESG surveys. Overburdening companies and teams with multiple surveys can result in increased costs, diverting resources from other critical business activities. Small and medium-sized enterprises (SMEs) may be particularly affected, as they often have limited resources and capabilities to address numerous surveys. Time frames with time-sensitive deadlines which sometimes do not align with the physical year there can prove challenging.

Companies are required to dedicate significant time and effort to complete ESG surveys. This administrative burden can divert attention away from strategic ESG initiatives and hinder companies’ ability to implement meaningful sustainability practices. Instead of focusing on genuine improvements, companies may prioritise meeting survey requirements without necessarily driving meaningful change. Overburdening companies with ESG surveys may lead to a short-term compliance mindset rather than a long-term sustainability focus. Companies may be more focused on meeting immediate reporting requirements rather than implementing robust and effective sustainability strategies. This can undermine the purpose of ESG reporting, which is to drive long-term positive environmental, social, and governance outcomes.

How can we help?

It is clear this process is broken, EthicsGrade is hopeful to help.

EthicsAnswer allows sustainability professionals to actually improve on our sustainability performance rather than just reporting on the improvements we made in the past. EthicsAnswer is just like ChatGPT you ask it a question it generates an answer, unlike ChatGPT EthicsAnswer is based on real data and provides evidence and the location of that evidence for the answer. Users are also able to upload their personal relevant resources and enjoy safety features so they can avoid the fear of data leaks. We would love to support any ESG question on any company for any stakeholder.

Join our waitlist here.

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