The growing importance of ESG has prompted the need for accurate and impactful ESG reporting.
There is increasing pressure on organisations to set a target date for their net zero goal and to determine and present ESG delivery plans outlining how they will achieve it.
Typically, the primary focus is on reducing direct operations impact before moving onto the indirect impact, which incorporates supply chain emissions.
Reporting advantages
Currently there is no overarching UK legislation solely focused on ESG.
Good performance of ESG enables organisations to demonstrate a commitment as a choice rather than an instruction.
Reporting on sustainability forms part of the annual report submission for public service organisations. There is guidance available which sets out the minimum requirements for central government, best practice and underlying principles to be adopted in preparing the information.
Both the Modern Slavery Act 2015 and the Equalities Act 2010 cover particular ESG issues.
There are also non-mandatory guidelines and projects that organisations can adopt to further their ESG practices. Examples include:
- Carbon Disclosure Project
- Task Force on Climate Related Financial Disclosures (TCFD)
- Global Reporting Initiative
- UN Sustainable Development Goals.
The direction of travel of the UK Government is defined in the Net Zero Strategy: Build Back Greener, which sets out policies and proposals for decarbonising all sectors of the UK economy to meet the UK net zero target by 2050.
It is the UK Government’s intention to require large organisations to make climate-related disclosures in line with TCFD recommendations by 2025. TCFD recommendations are being adopted more broadly as the foundation for new international sustainability standards (for example, upcoming/proposed sustainability standards from IFRS Foundation’s International Sustainability Standards Board (ISSB) and the International Public Sector Accounting Standards Board (IPSASB)). Adopting TCFD recommendations ensures that the UK public sector is following global best practice.
In the public procurement arena, there are requirements via the Procurement Policy Note ‘PPN 06/20’ for ESG practices to form part of the scoring mechanism for public sector contract awards at a value of at least ten per cent of the overall rating.
Do not lose sight of the real benefits of ESG reporting: to be able to walk others through your ESG journey, to use reporting as a lever for change, and to help inform and plan further ESG activity.
The ESG journey
Before shaping your ESG reporting strategy on net zero, gather key data points and analyse your impact. Set a baseline, your ‘starting’ point, then consider your end goal.
The next step is to start to set out your pathway. This will include identifying key milestones at critical points in your journey. Consider how you will measure and demonstrate progress and achievement towards net zero.
Reporting
The first question to answer is ‘who are you reporting to?’
Different stakeholder groups will have different requirements and needs, and reporting may need to be adjusted for internal stakeholders, external stakeholders and central government.
Internal reporting
It is usual practice for an organisation’s board or executive to provide oversight of material sustainability risks and opportunities. This would include net zero and ESG reports.
Ideally an ESG committee will be formed with broad representation from the organisation’s functions. This committee should deliver a programme of ESG activity, including climate and environmental reporting. ESG dashboards and supporting management information can support effective decision-making for the committee.
Public reporting
Public reports usually encapsulate the three priority ESG Pillars:
- Targets and goals - your ESG ambition for the organisation and your ESG strategy.
- Metrics and management information - development of key ESG performance metrics to demonstrate progress and achievement on your ESG journey.
- Governance - defining ownership of ESG – documentation, reporting practices and governance structures across the organisation.
When publishing external reports, consider accessibility, usability, quality and completeness of your available ESG related disclosures and reporting documents. Transparency and ease of use are good practice in ESG reporting.
Reporting format
ESG reports and dashboards may encapsulate information on community investment, environmental and demographic data. This could include climate roadmaps and deep dive data on environmental impacts to include Scope 1, Scope 2 and Scope 3 as part of the net zero pathway goal.
Organisations need an evidence bank to support the data and dashboards they are reporting on.
Dashboard monitoring on environment and sustainability could include, for example:
- Energy usage (kWh)
- Renewable energy consumption (kWh)
- District heating and cooling (kWh)
- Waste (tonnes)
- Water usage (m3)
- Paper consumption (tonnes)
- Business travel (passenger km).
An organisation’s ESG reports will evolve over time. The key is to get started and use stakeholder feedback to continually review and further develop reporting requirements.
