Solving The Unsolved Mystery: How To Tackle ESG Targets, Reporting, And More!
Environment, social, and governance (ESG) reporting: It’s new, it’s evolving and it’s all over the place. But what the heck is it? ESG reporting is the disclosure of environmental, social, and corporate governance data. Its purpose is to shed light on a company’s ESG activities while improving investor transparency and inspiring other organizations to do the same.
As it stands, uniformity in ESG reporting is low while investors’ demand for consistency is high. And while most current frameworks are voluntary, they won’t be for long. With looming regulations from the Securities and Exchange Commission (SEC), the time has come to get prepared for ESG reporting!
To wrap our heads around such a nuanced and complex topic, we gathered leaders from Kearney’s social impact practice during our annual Social Impact Leadership Conference (SILC) in 2022. During this session, they shared what they’re seeing in regulatory conversations with boards and C-suites. They also shared what they’ve found to be key to success for CSR leaders working with their colleagues to transform their companies with an emphasis on ESG.
Kearney is a leading management consulting agency that supports corporations, nonprofits, and public institutions in identifying the strategies, tools, and processes that are essential for achieving their goals. They also work with leaders in the social impact space by helping corporations and investors set ESG goals and take action.
Missed the conversation? Check it out here!
Don’t have time for the full session right now? Get conversation highlights and key takeaways below.
When it comes to ESG, it’s one thing to say something and it's something else to act on it. It’s not enough to merely set goals. Your company must develop an action plan, measurement strategy, and reporting framework. Without doing so, it is impossible to assess whether you’ve actually achieved your goals or made an impact on communities. However, creating a strategic plan is easier said than done. Thankfully, leaders at Kearney’s Social Impact practice have developed 5 focus areas for companies looking to develop their ESG strategy:
- ESG transformation: What actions can your company take to radically transform your business in order to account for ESG?
- Net zero emissions: How can your company work toward a carbon neutral status?
- Sustainable and responsible sourcing: Supply chain diversity has been readily adopted by companies in recent years, but what about carbon, water, waste, and other elements of ESG that companies still need to tackle with their suppliers? What work do you have left to attain a sustainable and responsible supply chain?
- Circularity: What is the circular economy that your company has developed so that your products come back to you in some way?
- Equitable & inclusive society: How does your company impact the communities you exist in?
While these 5 focus areas do not encompass the full spectrum of ESG goals and objectives, they’re a great jumping-off point for companies trying to understand where they are and the work they have left to accomplish. From there, it’s easier to formulate a plan and begin to track and measure progress.
The Status of ESG Today
Historically, conversations surrounding ESG have heavily focused on the environmental component while the social aspect took the backseat. However, based on upcoming mandates from the regulatory space, the investor community, and boards and leadership teams, the environmental and social impact components must be interconnected in order to take ESG from a side project to something that is at the core of how businesses and organizations exist day-to-day. ESG can no longer be an afterthought—it should be the core of how businesses operate!
With upcoming regulatory pressure from the SEC, companies must be equipped with the tools and strategies to successfully develop and deploy an ESG strategy and reporting framework. To gauge the status of this today, the Kearney social impact team surveyed over 100 CEOs, board members, and other organizational leaders to understand what’s been successful in their ESG practice. Nearly half of the respondents reported that their sustainability programs were not meeting their own expectations. This begs the question; What do we know about their existing programs? What are they measuring? And how are they reporting their impact?
The good news is that a lot of efforts are measured today; community involvement, greenhouse gas emissions, Diversity, Equity, Inclusion, and Belonging (DEIB) metrics, and employee wellbeing. Over the past few years, there’s been a big effort to understand what's going on inside of companies and the impact they’re having on communities. On the flip side, there’s a gap in what companies are reporting externally. While there’s a lot of reporting on human rights, workplace safety and health, and greenhouse gas emissions, there’s a lot of targeting that is not currently reported on ethical sourcing, DEIB, and employee wellbeing. We know companies are measuring these areas, but why aren’t companies reporting them?
The Importance of ESG Reporting
As companies continue to expand their target areas and measure their impact, it is imperative that outcomes are reported to internal and external stakeholders. Transparency and reporting consistency is the crux of ESG, especially with the emerging discussion around greenwashing—it's become a huge concern! Sometimes unintentional, greenwashing occurs when an organization's management team makes “false, unsubstantiated, or outright misleading statements or claims about the sustainability of a product or service, or event about business operations more broadly.”
Greenwashing puts an organization’s work at risk because it makes people question if the dollars invested truly made an impact. This is where having good data matters! If your organization has a standardized process for measuring impact and a consistent reporting framework, your efforts won’t be called into question.
And while most ESG reporting is voluntary today, the SEC is currently formulating a proposal to require public companies to disclose climate change-related risks to investors in regulatory filings like annual reports. In preparation, companies can begin to add structure and controls to establish consistent, repeatable processes for ESG data handling and reporting. Additionally, compliance departments can develop procedures for third-party verification and identify other potential risks, such as gaps in reporting.
Eventually, this will apply to the social impact component of ESG. By developing structures and processes for measuring things like access to food and water, public health measures, and access to education, companies will stay ahead of the regulatory community and even the demands from investors. This will be a huge differentiator between companies that are able to be innovative and forward-thinking and those that are going to be caught off-guard.
But this is just the tip of the iceberg! Ready to dig a little deeper? Check out the full session, and other great conversations from The Social Impact Leadership Conference at our SILC Content Hub—see you there!