Sustainability and ESG reporting must be prioritized

The business case for your C-suite.

The world has changed in business and people’s expectations of companies. Historically, companies existed to serve shareholders. In August 2019, the Business Round Table (BRT) issued a revised statement of a corporation’s purpose. The amended declaration recognized that corporations have a commitment to all stakeholders. They should deliver value to their customers, invest in their employees, deal fairly with suppliers, support the communities in which they operate, and generate long-term value for shareholders. 

This adjustment indicated a resounding shift in corporate responsibility. Its ripple effect has been felt far and wide. Today, businesses are pressured to address social and environmental challenges rather than maximize profits alone. Stakeholders want companies to be “part of the solution, not the problem” and operate responsibly and sustainably. Companies must adopt environmentally friendly practices and contribute to a “greater good.” Organizations that don’t risk real penalties— the potential dangers comprise the “business case” for why companies must evolve:

• Reputation Damage — In the age of social media and instant communication, negative actions or practices by organizations can quickly become public knowledge. Because of this, consumers may stop buying their products and services, which can harm a brand’s image and reputation.
• Consumer Boycotts — Consumers today are becoming more conscious of ethical and sustainable practices. If a company’s products and services are perceived as not contributing positively to society or the environment, consumers may boycott them in favor of more responsible alternatives.
• Regulatory and Legal Actions — Governments and regulatory bodies are steadily taking more action to address climate change and other sustainability challenges. Requirements to disclose information about an organization’s environmental impact, social practices, and corporate governance are being mandated in many parts of the world and will soon be in others. Those who violate environmental regulations or engage in unethical practices may face fines, legal action, or even closure.
• Scrutiny by Investors – Investors pay greater attention to environmental, social, and governance factors when making investment decisions. A company with poor ESG performance may have difficulty attracting investors and find the cost of capital higher.
• Loss of M&A opportunities — A company’s ESG performance is now part of M&A due diligence. Poor ESG performance puts a company at a higher risk of being passed over. Ultimately, it limits future possibilities.
• Loss of Competitive Advantage — Companies that fail to embrace sustainability practices may lose out on opportunities to innovate and adapt to changing market trends. Businesses that proactively address environmental and social concerns can gain a competitive advantage.
• Talent Attraction and Retention — Millennials and younger generations generally prefer to work for organizations that share their values. A company that doesn’t follow ethical and environmentally friendly practices may have difficulty attracting and retaining the talented workforce they need to outperform their peers.
• Suppliers and Partnerships — Companies that do not prioritize ethical and responsible business practices may struggle to form partnerships with other organizations. A supplier or partner with poor ESG performance is increasingly seen as a liability.
• Market Access — Many markets and regions implement stricter environmental regulations and sustainability requirements. Companies that do not meet these standards may have difficulty accessing those markets.
• Investor Activism — Activist investors and stakeholder groups may demand changes in company practices and management if sustainability issues are neglected.
• Public and Media Scrutiny — Negative press can adversely affect an organization’s image and brand. There is a possibility of devaluation, reduced sales, and lost business opportunities.

Of course, depending on factors such as industry, jurisdiction, and public sentiment, the consequences of ignoring ESG can differ. Globally, however, companies are increasingly recognizing sustainability’s value from both an ethical and a strategic business decision to ensure viability long-term.

Creating an effective ESG/Sustainability Report

Enter the growing importance of ESG reports. Driven by rising investor interest in ESG matters, a growing number of regulatory changes, and increasing societal expectations for corporate sustainability and transparency, as of 2022, 90% of S&P 500 companies publish an ESG or Sustainability Report. In addition, numerous recent studies show a positive correlation between high ESG scores and corporate financial performance.

Given all this, ESG reports are increasingly salient to people today because they want to buy from, work for, and invest in companies that prioritize ESG-friendly practices. However, since it is up to each company to operationalize ESG principles and integrate them into their business practices, the ESG report has become essential for evaluating how a corporation acts on their ESG commitments in their day-to-day operations, strategic planning, and long-term visions. It’s why ESG reports are now a business imperative, moving from being a “nice-have” to a “must-have.”

Ergo, with a lot riding on a company’s ESG narrative, one might wonder how to create a more effective ESG/Sustainability report. From our years of experience, we have the following suggestions:

• Highlight your corporate brand — especially what you stand for, why you exist, what you believe in, and the difference you’ll make in the world. Your humanness — your purpose, vision, mission, and values. Include the behaviors, actions, decisions, and mindsets that drive your company, shape your culture, and inform your sustainability strategy.
• Use established frameworks (such as GRI, SASB, CDSB, CDP, TCFD, PRI, CDP, and DJSI) as less of a compliance burden and more of a helpful guide for communicating and structuring your ESG performance. Consider including content that fulfills multiple frameworks, which align with your sector, industry or E, S, or G priorities. Then, report outside the box too.
• Communicate your sustainability strategy — focus on issues material to your company’s business stakeholders, as identified through a robust materiality assessment process.
• Proclaim your goals and objectives — clearly state your company’s sustainability objectives and targets, including short-term and long-term goals. Then, communicate your progress on reaching them.
• Be honest about shortcomings — if there are areas where your company can improve, acknowledge them. Stakeholders appreciate honesty and forward-looking commitments. Transparency builds trust.
• Visualize your ESG performance and your incremental progress towards reaching your goals. Provide context that incorporates a starting point and your the movement of your ESG initiatives over time.
• Compare and contrast the success of different ESG initiatives and explain the difference. Remember, the goal is transparency and showing progress, even if the result is learning why a particular initiative did not pan out.
• Demonstrate how your company’s sustainability efforts are integrated into your business strategy. Highlight how sustainability is embedded in your company’s operations, culture, and decision-making processes.
• Share stories of how your sustainable business strategies are resulting in competitive advantage, proactive risk management, operational efficiencies, being a driver of innovation, investor appeal, engagement/attraction/retention of employees, increased brand reputation and trust, as well as showcase your contributions to global efforts to combat climate change, preserve natural resources and promote social justice to leave a lasting positive impact on the world.
• Connect your ESG performance with financial results. Stakeholders want sustainable, moral, ethical, and profitable companies. Demonstrate how ESG contributes to your bottom line.
• Provide a clear vision for the future and a roadmap for achieving your company’s sustainability goals. This includes plans for addressing emerging risks and opportunities, allowing you to thrive in an evolving marketplace.

At Baker, we believe it’s time for all businesses to understand that ESG reporting is a huge opportunity for a company to reap big rewards. Organizations can build trust, improve brand reputation, and create a more resilient and sustainable business model. Telling a compelling ESG story creates long-term value and competitive advantage. So, here’s our short list of do’s and don’ts for ESG reporting.

Do:

• Be transparent
• Use certifications (like B Corp, Best Places to Work, Most Ethical Co., etc.)
• Prioritize authenticity
• Educate stakeholders
• Keep data and progress updated
• Engage in two-way communication — open channels for feedback
• Report regularly

Don’t:

• Exaggerate claims
• Be vague
• Rely on unsupported claims
• Use misleading stories or imagery
• Ignore stakeholder concerns
• Focus only on One Positive

Remember, the biggest don’t by far is — to squander your chance to tell your ESG story on your terms Instead use it to help your company grow and thrive.