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ESG Reporting

ESG Reporting

What a company needs to know about reporting

What Companies Need to Know about ESG Reporting
01.02.2024
Data Management
Utilities

ESG reporting is becoming increasingly important in all sectors as companies are increasingly required to demonstrate sustainable action. The media, investors, and customers evaluate companies based on their social commitment, climate protection, and resource-conserving production. The following overview shows why ESG reporting is essential and what steps are necessary to achieve this.

Definition: What Is ESG Reporting?

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ESG reporting produces a report that summarizes all corporate activities with an impact on the three areas of social society, the environment, and corporate governance. The abbreviation ESG is made up of the words environmental, social, and governance and therefore refers to the areas above. The term ESG reporting originally comes from the financial sector. Investors benefit from reporting as a decision-making aid for investing in sustainable investment products. The reports produced allow various key figures to be compared and specifically determined.

 

What does an ESG report contain?

The content of an ESG report focuses on how the company's activities affect the environment, the workforce, and society. The report must therefore contain both quantitative key figures and qualitative information. The decisive factor in ESG reporting is the data that makes corporate performance measurable with regard to sustainability issues. The more ESG criteria the companies fulfill with the key figures, the more responsibly and sustainably the reports position the companies.

 

Relevant values here include water and energy consumption as well as CO2 emissions. Other important ESG indicators include appropriate remuneration and diversity within the company. An ESG report also contains crucial information on waste generation and any incidents of corruption.

Why Is ESG Reporting Becoming Increasingly Important for Companies?

Sustainability reports are becoming increasingly important for many companies, and not just because of existing or future ESG reporting obligations. The reports provide crucial information on various areas of sustainability. An ESG report with positive content therefore significantly enhances a company's reputation. Shareholders and investors often make decisions based on the content of the reports. In addition, ESG reporting findings help make production more sustainable and thus attract additional customers.

 

Proven sustainability from the ESG report also highlights economic benefits. For example, if companies already rely heavily on renewable energies, potential energy crises can be managed more easily. Companies that impress with good conditions for employees in their ESG reporting in the social area can often improve their reputation as an employer and retain skilled workers. Below-average employee turnover and flexible working time models are information that can be decisive in the battle for talented employees. It is therefore worth addressing employees with ESG reporting.

 

Is ESG reporting mandatory?

With the CSR Directive Implementation Act, reporting has already become mandatory for certain companies in 2017. As a result, large companies in Germany that are capital market-oriented must prepare reports with relevant information on sustainability. The obligation also affects insurance companies, financial service providers, credit institutions, and cooperatives. There is no ESG reporting obligation for many other companies, at least until the end of 2024.

Possible Standards for ESG Reporting

As there is no clear mandatory format, companies can choose between various German and European standards for ESG reporting. The German Sustainability Code and the Global Reporting Initiative are the most popular frameworks at the national level.

 

At the EU level, the European Financial Reporting Advisory Group (EFRAG) has prepared drafts of the EU Sustainability Reporting Standards (ESRS drafts) in collaboration with technical experts and submitted them to the EU Commission for formal adoption. The ESRS will then become binding for all companies covered by the CSRD (Corporate Sustainability Reporting Directive).

However, due to the significant differences between industries and companies, there is no perfect blueprint for ESG reporting. Each company must define its own standards with a materiality analysis.

Which Companies Need to Engage in ESG Reporting?

Due to the ESG reporting obligation, there is now no alternative for capital market-oriented companies in Germany to deal with reporting. The obligation will be extended to all large companies on January 1, 2025. The criteria for mandatory ESG reporting will then be a minimum of 250 employees, net sales of €40 million or more, and total assets of €20 million or more.

 

The obligation applies as soon as two of these three criteria are met. This particularly affects limited liability partnerships, insurance companies, and banks. As of January 2026, the criteria for companies with a capital market-oriented structure will be reduced to ten employees, sales revenue of 700,000 euros or more and total assets of 350,000 euros or more. However, medium-sized and small companies without a capital market orientation, as well as micro companies, will not have to comply with ESG reporting requirements for the time being.

 

Just a few steps to an ESG report

ESG reporting is associated with extensive challenges. Because the European Commission does not provide clear templates for sustainability reports, it is important to provide guidance on how to prepare them. The following steps in particular remain crucial:

  • In order to define an individual ESG strategy, companies must first define their long-term and short-term sustainability goals. At the same time, it is crucial to determine how the goals are to be achieved. This information is used to create a basic strategy for ESG reporting, which companies pass on internally to their own departments and teams. Later, regular reviews often result in adjustments to the original sustainability strategy.

  • Companies benefit from collecting all existing ESG data directly from internal company information and taking every department into account in the process. External service providers with responsibilities within the company and professional data providers are also sometimes helpful sources when collecting data prior to ESG reporting. The information collected in this way forms a crucial data basis for the ESG analysis.

  • In the next step, companies define detailed ESG criteria with ESG indicators and KPIs. This makes the companies' sustainability efforts measurable in the ESG report. The criteria also enable comparison with other companies.

  • After calculating the KPIs, companies define the ESG frameworks. This provides companies with guidance for the ESG report. Before deciding on ESG frameworks, companies must first and foremost consider what content should be reported to whom.

  • In the final step, companies create the ESG report. Professional ESG software is indispensable here. Versatile tools make ESG reporting considerably easier. The most important factor here is the accuracy, consistency and availability of the company data. With the help of our cloud-based environmental data platform green.screen all energy and resource consumption can be collected, calculated, monitored and documented company-wide. The transparency gained opens up optimization potential and thus the reduction of the carbon footprint. In addition, green.screen can be easily integrated into existing software systems.

Advantages of ESG Reporting for Companies

Companies benefit from a wide range of advantages by preparing and publishing an ESG report. This applies regardless of whether an ESG reporting obligation already exists.

External benefits of ESG reporting

Through ESG reporting, companies can receive important feedback on relevant sustainability activities and programs. A positive ESG report strengthens investor loyalty through transparent communication, while the measures implemented also improve the company's reputation and present the true value of the company. For rating agencies and investors, ESG reporting in turn offers a convincing source of information, just as it does for press research.

Internal advantages with an ESG report

Employers become more attractive to skilled workers through impressive data in the ESG report and, at the same time, bind their own workforce more strongly to the company with implemented sustainability measures. While companies better understand the risks and opportunities in their own development with ESG reporting, internal strategies can be adapted to the findings at an early stage. There is also the opportunity to save costs in the long term with the identified potential for increasing efficiency.

Conclusion: ESG Reporting as an Opportunity for a Detailed Examination of Sustainability

ESG reporting plays a crucial role in comprehensive strategies that enable companies to address the issue of sustainability better and in more detail. The reports are an extremely helpful communication tool for companies. However, companies must pay attention to the details of what specific information is published in a certain way with ESG reporting. Under no circumstances should the impression be created that a company only wants to present itself in a positive light through greenwashing. As soon as consumers uncover such attempts in social networks, the reputation of a company could otherwise suffer considerable damage.

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Written by

Dominik_Keindl
Dominik Keindl
Expert for green.screen