Environmental, Social and Governance (ESG) Reporting

Environmental, Social and Governance (ESG) Reporting

Have you ever wondered how you can report the environmental, social and governance impacts of your business’ operations? ESG reporting is the answer to that! Over the last two decades there have been growing concerns about preserving the environment and businesses needing to have strategies on how they intend to make their operations sustainable to preserve the environment.

ESG reporting is a report published by an organization about the environmental, social and governance impacts of its operations. The ESG reports gives an insight on how well an organization is managing its non-financial risks related to environmental impact, social responsibility and corporate governance. It also lets them track sustainability efforts and report on their performance to this regard.

Let’s Breakdown the ESG Report

The ESG report has three pillars namely: Environment, Social and Governance. These pillars are widely based on the elements of the United Nations Sustainable Development Goals (SDGs). In the next paragraphs we will explain each pillar in detail and give examples of such.

1. Environment

The environmental pillar of ESG refers to the impact of a company’s operations on the environment. These can also be viewed as policies and procedures implemented by an organization to manage environmental issues such as greenhouse gas emissions, energy consumption, waste management, and water usage. Companies that prioritize environmental sustainability are more likely to attract socially conscious investors and contribute positively to the planet. There are several environmental factors which investors consider important such as carbon footprint, renewable energy and waste management.

  • Carbon Footprint: This refers to the amount of greenhouse gas emissions (including carbon dioxide) that a company produces from its operations, which can have a significant impact on the environment. Investors may look for companies that have a low carbon footprint or are taking steps to reduce their emissions.
  • Renewable Energy: Renewable energy is derived from natural sources such as solar, wind and geothermal heat – commonly termed green energy. In today’s world, organizations that use renewable energy sources are considered as more environmentally responsible than those that rely on fossil fuels (non-renewable energy). Investors view organizations that use renewable energy sources as more desirable to invest in.
  • Waste Management: This is a streamlined process used by organizations to dispose of, reduce, reuse and prevent waste. Waste management practices, such as recycling and waste-to-energy and anaerobic digestion, can significantly reduce a company’s environmental impact making an organization more desirable to invest in.

2. Social

The social pillar of ESG focuses on an organization’s efforts on social responsibility and how it contributes to the communities it operates in. At the core of the social pillar is the human element of an organization’s operations – organizations committing to and respecting human rights to prevent modern slavery. It can be viewed as a broad spectrum of factors ranging from labour practices, human rights, community engagement, diversity, physical and mental health related issues and workplace safety. Companies that prioritise social responsibility are more likely to attract socially conscious investors and create value for their shareholders.

There are some important social factors that investors consider when evaluating companies which include:

  • Diversity and Inclusion:  Diversity in the workplace is when an organization intentionally employs a workforce that is composed of individuals with a wide range of characteristics such as gender, religion, race and ethnicity, age and disability status. Diversity offers a wider talent pool and improves innovation. Inclusion is about ensuring that everyone feels valued and respected as an individual, it also entails providing equal access to opportunities and resources in the organization. Organizations which have diverse leadership teams and foster an inclusive workplace culture are viewed more desirable to investors.
  • Labour Practices: These are practices that affect employee hiring and promotion, remuneration, disciplinary action, complaint response system, transfers and reassignment, termination of employment, human resources development, occupational safety and health, and working conditions (working hours and remuneration). Organizations that treat their employees fairly and provide safe working conditions are seen as socially responsible and desirable.
  • Human Rights: These are the basic rights and freedoms that belong to every person in the world, from birth until death regardless of race, sex, nationality, ethnicity, religion or any other status. Companies that respect human rights and do not practice unethical practices such as forced labor, are viewed more desirable to investors.

3. Governance

The governance pillar of ESG refers to how an organization operates internally, its corporate behaviour (accountability, transparency and ethics). This includes factors such as board composition, executive compensation, transparency and anti-corruption, ethics and values, and shareholder rights. Companies that prioritise strong corporate governance are more likely to attract long-term investors and create value for their shareholders.

Some important governance factors that investors consider when evaluating companies include:

  • Board Composition: Companies with diverse and independent boards are seen as more effective and accountable. There have been growing concerns to have gender balanced boards as part of good corporate governance practices.
  • Executive Compensation: Companies that align executive compensation with long-term sustainable performance are viewed more favourably by investors.
  • Shareholder Rights: Companies that respect shareholder rights and engage in transparent reporting practices are viewed more favourably by investors.

A sustainable organization is one that places the three ESG pillars at the lead of its operations while creating an organizational strategy which actively seeks to preserve the environment and boost local communities while also generating profits.

Which Components of ESG are Relevant to Your Organization?

Of the three pillars of ESG reporting, not all of them may apply to an organization – the reasoning behind being not all sectors of the economy are exposed to the same ESG issues. The importance of ESG issues varies between organizations and sectors at large – the difference in ESG perspectives of what matters to particular organization or sector is called materiality. Materiality is also the principle of defining the social and environmental topics that matter most to your organization and stakeholders.

For example, a business in the service industry such as a stock broker will not likely consider greenhouse emissions or waste management as material ESG issues as compared to businesses operating the in the manufacturing industry such as  car or consumer electronics manufacturers.

Organizations report on issues that they consider material to their organization, and usually this materiality is based on ESG issues that are considered financially material in a given sector. Financially material issues are those that can adversely impact the organization’s financial performance such as loss of brand value/goodwill due to unsustainable practices, loss of revenue due to customers preferring more sustainable alternatives. Over the recent years, there has been a practice of using “double materiality” in choosing what is considered material by an organization. Double materiality refers to the idea that an organization’s financial statements should report both the financial impact of its operations on themselves and also the impact of its operations on the society and environment.

Why are Organizations Adopting ESG?

Many organizations around the globe are embracing ESG practices because of the several benefits offered by ESG practices. Some of the common reasons for embracing ESG include:

  • Improved brand reputation by making positive impacts on the environment, social side and good governance- brand becomes attractive to customers.
  • Attracts investors since investors now view organizations with good ESG practices attractive to invest in.
  • Better employee retention due to good labour practices which makes an organization attractive to work at.
  • Regulatory compliance with laws and regulations from Governments.
  • Increased profitability due to better operational efficiencies and cost savings which over time lead to better profits.

Reporting on ESG

Reporting allows an organization to understand and better manage its impacts on people and the planet. It can also identify and reduce risks, seize new opportunities, and take action towards becoming a transparent, trusted organization in a more sustainable world.

Reporting is typically done by applying one or more frameworks. The 2 most commonly used reporting frameworks are the Global Reporting Initiative (GRI) and the Sustainable Accounting Standards Board’s standards (SASB).

  • The SASB Standards are developed and maintained by the IFRS Foundation. They are a set of 77 industry-specific sustainability accounting standards which are intended to aid entities in disclosing information about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term. The standards contain five key elements namely: Industry Descriptions, Disclosure Topics, Metrics, Technical Protocols and Activity Matrices.
  • The GRI Standards are developed and maintained by the Global Reporting Initiative. They allow an organization to report information in a way that covers all its most significant impacts on the economy, environment, and people, or to focus only on specific topics, such as climate change or child labour. These standards are grouped into three:
    • Universal Standards – apply all three Universal Standards to your reporting,
    • Sector Standards – use the Sector Standards that apply to your sectors, and
    • Topic Standards – select Topic Standards to report specific information on your material topics.

The goal of ESG reporting is to demonstrate how your organization aligns with the various aspects of global sustainability issues.


ESG reporting brings transparency on an organization’s commitment to having sustainable operations that save the environment, uplift communities organizations operate in and promote sound corporate governance practices. Businesses should continuously strive to implement ESG practices and realize the benefits of such both in the short and long-term. Has your organization begun adopting ESG Reporting?

People – Planet – Profit

This article was written by Fleming Mukumba, Audit Associate at Kreston Zimbabwe Chartered Accountants and is available on request at info@krestonzim.com

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