ESG in 8 steps

ESG in 8 steps

 

Today, sustainability is no longer something you can ignore; it has become essential. Companies around the world now understand that environmental awareness, social responsibility and good governance are crucial to their long-term success. Therefore, they are now required to report on these issues to be transparent about their sustainability efforts and performance. Here are some concrete steps companies can take to properly address this reporting process.

 

 

Step 1: Understand the essence of ESG Reporting and delve into sustainability

 

Compiling a sustainability report without a solid foundation will not proceed smoothly. Before starting to compile such a report, it is essential to conduct thorough research and gather all the necessary information. This is done by in-depth research into the meaning of sustainability. Sustainability is often associated with pollution and reducing CO2 emissions. However, it also encompasses deeper and very important themes such as social and societal issues. By delving into sustainability, you can begin to link sustainable business practices and the concept of ESG reporting. This will give you a clear picture of the content of ESG reporting, as well as why it is essential for organizations to invest in it and report their activities. Finally, you must be aware of the most recent guidelines and legislation established by the European Union. Thorough preparation on sustainability issues greatly simplifies the reporting process.

 

 

Step 2: Dive into the various ESG frameworks

 

It is essential to thoroughly delve into the different frameworks that provide guidance during your reporting journey. An important aspect here is determining whether your organization is required to compile a sustainability report, particularly by researching the EU's CSRD directive. This directive specifies whether such reporting is required for your business and applies to all large, publicly listed organizations from July 1, 2024. Afterward, it will be gradually expanded to the rest of the business sector. This obligation is becoming increasingly important as investors, customers, and employees attach growing importance to sustainability.

 

It is also important to become familiar with the ESRS Standards, which help determine what your business should report for each pillar of ESG. Finally, it is highly recommended to create awareness and enthusiasm within the organization for sustainability initiatives. This can be done by organizing internal workshops involving both employees and management to increase their knowledge and stimulate their motivation.

 

 

Step 3: Assemble an internal CSR team

 

Compiling a high-quality report requires specific skills and knowledge, especially in the field of sustainability. It is important to appoint the right person or department responsible for coordinating the entire sustainability reporting process. This person or department serves as a central point of contact within the organization and leads the efforts to collect, analyze, and report sustainability information. It is important that this team not only has the necessary knowledge and expertise but also understands the broader business perspective and integrates it into the sustainability strategy.

 

Furthermore, it is important to consider which other departments should be involved in this process. Sustainability affects various aspects of an organization, such as financial reporting, external communication, and human resources. Involving relevant departments ensures a holistic approach and effective implementation of sustainability initiatives.

 

The most difficult step in compiling ESG reporting is effectively creating your first sustainability report. It is strongly recommended to engage experts or consultancy firms to help you get started. This is especially true for mapping the social aspects of ESG, as these themes can be complex. Engaging experts in this field can be invaluable in supporting you and ensuring that your reporting is carried out correctly. Their expertise can help identify relevant social issues and implement effective strategies to address them.

 

 

Step 4: Identify stakeholders and material ESG factors

 

For an accurate composition of your report, you must establish relevant ESG factors through a double materiality analysis. This method, prescribed by the European Sustainability Reporting Standards (ESRS) and mandated by the Corporate Sustainability Reporting Directive (CSRD), requires you to look at all relevant ESG factors from both an inside-out and an outside-in perspective. More on double materiality below.

 

Identifying stakeholders affected by or influencing your company's sustainability performance is crucial. This includes internal parties such as employees and external groups such as customers, suppliers, investors, local communities, and environmental organizations. Gaining a clear understanding of these stakeholders through sector analyses is fundamental.

 

It is also important to collect feedback early in the process from both internal and external auditors, who can share their insights on the stakeholder and materiality analyses. This helps to build on a solid foundation from the beginning.

 

Stakeholders:

For writing the report, it is essential to identify key stakeholders, engage them, and gather their perspectives on the main ESG trends within the company. These stakeholders, ranging from individuals to organizations, can have a significant impact on or be influenced by the company.

 

Internal stakeholders:
All departments within the company, including management, play a crucial role in formulating the framework for the ESG report. Their contributions are indispensable for understanding the mission, values, policies, strategies, objectives, and ambitions of the company.

 

External stakeholders:
External stakeholders such as investors, suppliers, customers, sector organizations, and local communities provide valuable insights that are essential for understanding external influences on the company. Their insights are crucial for shaping the future ESG strategy. Effectively engaging these important stakeholders, through methods such as personal meetings, workshops, or online surveys, is of great importance for the success of the company's sustainability strategy. 

 

 

Double materiality

 

 

Double materiality is a concept within the framework of sustainability reporting, which emphasizes that organizations must consider two types of materiality when reporting on their activities:

 

Financial materiality: This aspect focuses on how environmental and social issues can affect the financial performance and value of a company. It involves identifying the sustainability issues that can significantly impact the financial health and profitability of the enterprise, such as climate change, working conditions, or corruption.

 

Environmental and social materiality: This aspect focuses on the impact that a company's activities have on society and the environment. This includes assessing the effects of business activities on the environment, local communities, and society at large. This involves assessing issues such as emissions, waste management, and working conditions.

 

The concept of double materiality is particularly relevant. It helps companies not only identify and assess risks and opportunities from a financial perspective but also from a societal and environmental perspective. This allows stakeholders to get a more complete picture of a company's performance and strategies in relation to sustainability.

 

 

Step 5: Collect and measure data

 

Once you have identified the key ESG factors, start collecting data on these factors. Begin by implementing new processes and collecting the necessary sustainability data throughout the financial year.

 

These data can come from internal sources such as your ERP system, financial reports, employee surveys, or customer reviews. External sources such as industry benchmarks and ESG ratings are also valuable.

 

When collecting internal data on your employees, it is important to carefully consider the best approach to make the data accurate and reliable. This can be done in various ways, including the use of people sustainability scans. These scans can be integrated through workshops to discover and map hidden issues within your company.

 

Saving time and effort is a dream of every organization, so using specialized software is advisable. Take, for example, "own employees," a critical component of the social ESG factors that many companies will need to report once the CSRD regulation is in effect. By integrating tools such as eSgility into your data collection processes, this will greatly help you map out your sustainability efforts. As a result, you get a very clear overview/dashboards with results and analyses that you can then easily use in your final report.

 

 

Step 6: Present the data in a clear way

 

Consult the ESRS to understand how the material sustainability themes can be translated into measurable goals and indicators. Now that you have collected data and understand what it entails, it is time to structure it. There are several reporting standards available, including the ESRS, the International Sustainability Standards Board (ISSB), and the Global Reporting Initiative (GRI). If you are required to report on ESG factors within the CSRD, you must follow the ESRS. As this is expected to be the most widely used standard, we will focus on that.

 

How do you organize the data? Make it clear and concise. For each ESG factor, you must explain why you are reporting on it (is it mandatory, or have you determined its relevance yourself?). Then, using the data, show what you have done over the past year regarding this ESG factor. Repeat this process for all the key factors you identified in step 2.

 

You do not have to start from scratch when compiling this report. Many companies already have experience publishing ESG reports. Use these existing reports as a source of inspiration, which significantly simplifies the process for you. Take the time to thoroughly review these reports.

 

 

Step 7: Verification of the reporting

 

Before publishing your report, it is crucial that an internal or external auditor thoroughly reviews the document to ensure that it meets all reporting requirements. Once you are satisfied with the content of your ESG report, the next step is to have it officially approved. This starts with internal approval, where you coordinate with key executives such as the CEO, CFO, or Chief Sustainability Officer, to obtain their support and signature. This confirms their involvement in the reporting.

 

If your organization is required to report, the report must be audited by an external accountant. It is important to note that not every accounting firm is authorized to perform this audit; they must be registered with the Financial Markets Authority (AFM). The signing by the accounting firm implies that they provide an Assurance statement, confirming the reliability of the reporting.

 

 

Step 8: Reporting

 

Report on the current state of your sustainability performance, even if no action has been taken in some areas. Provide both qualitative and quantitative details about your processes, describe your current position, and share your future vision and goals you aim to achieve. Also, ensure that topics such as product end-of-life, circularity, and lifecycle analysis of products are included in your report.

 

After all your efforts, it is time to present your report. Since you have invested a lot of time and energy into it, it certainly deserves attention. Actively promoting your report shows that your company is committed to sustainable business practices. This can enhance the confidence of key stakeholders such as customers and investors, which in turn benefits the reputation of your organization.

 

Actively sharing your report encourages stakeholders to provide feedback. Taking this feedback seriously helps you improve your ESG performance, resulting in a clearer and more effective report for the next year.

 

Publish the report on your website, send it by email to customers and investors, share it on social media, and discuss it in person. In a competitive market, emphasizing your sustainability efforts can give you an edge over the competition.

 

Finally, the reporting cycle offers an opportunity for continuous evaluation, learning, and improvement. Clear goals are set annually to improve sustainability performance the following year, with active feedback from stakeholders also taken into account in this process.

 

We point out the impact of the social pillar in your ESG transition and offer you scans, tools, and consultancy to help you get started.

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