ESG reporting: get ahead of the 2024 changes

Faced with the urgency of climate action, more and more companies are reviewing their business models.

As an entrepreneur, you’re no doubt aware of the environmental issues that businesses now have to take into account. Perhaps you’re looking to grow your company in a more sustainable way, with renewed focus on the well-being of your people or the planet.

But with greenwashing and other dubious marketing campaigns hitting the headlines, rhetoric simply won’t cut it. Proving your commitment through concrete action is more crucial than ever, and one sure way of doing that is through ESG reporting - which will become obligatory in 2024 for a wider range of companies.

But what exactly is ESG reporting, and what are the benefits of doing it? Is it a mandatory or voluntary initiative? And above all, how can you make it work for your company?

Let's take a closer look in this article.

When an entrepreneur starts looking at how they can make their business more sustainable, they’re quickly confronted with a range of confusing acronyms.

From ESG and CSR, to CSRD and NFRD, it can be tricky to grasp what each of these entail and how they differ from one another.

For example, CSR and ESG are often used interchangeably. While they cover similar issues, there are some notable differences between them.

• Corporate Social Responsibility (CSR) is an umbrella term to describe how a company conducts itself from a social and environmental perspective. It’s a self-regulating model that encourages businesses to make a more positive contribution to the wider world, and become more accountable to themselves and to the public - all while remaining competitive on the market.
• Environmental, Social and Governance (ESG) is a framework for assessing a company's CSR performance in light of these three criteria. Rated on a scale of 0 to 100, these criteria provide a very concrete measure of a company's impact. Investors are increasingly using this data to determine whether a business is worth investing in.

ESG reporting (or sustainability reporting) is the process of evaluating a company’s CSR commitments and actions against ESG criteria, and summarizing the findings in a report.

This document addresses all questions related to how a business handles environmental, social, and corporate governance issues. The findings will be of interest to most company stakeholders, from employees and customers to partners and, perhaps most of all, investors.

More and more investors now take ESG performance into account before putting their money into a business. They rightly believe that economic and financial indicators are important, but not enough to judge a company's overall long-term viability.

As the name suggests, ESG reporting covers three main categories: environmental, social, and governance criteria. But what does this mean in practice?

Environmental criteria assess the impact of a company's business activity on the environment, including data about:

• CO2 emissions,
• electricity consumption,
• resource efficiency,
• supply chain management,
• waste recycling.
  
  

Social criteria, on the other hand, measure a company's performance in terms of fulfilling its obligations to employees and other stakeholders (subcontractors, partners, etc.) Universal values such as international labor laws and human rights standards are used to gauge this performance.

In this case, ESG reporting involves collecting employee and workplace data, such as:

• working conditions and safety precautions,
• quality of dialogue between the employer and its employees,
• gender parity,
• inclusion and diversity,
• measures to prevent harassment and burnout,
• staff training.
  
  

Governance criteria evaluate how well a company is run, including information about:

• who is on the board of directors,
• the company’s level of independence,
• shareholder relations,
• transparency around executive compensation,
• safeguards against corruption and conflicts of interest.

Until recently, obligatory ESG reporting only applied to very large companies. The Grenelle laws, and in particular the Grenelle II law adopted in 2010, made reporting mandatory in France for:

• Unlisted companies with over 500 employees and a balance sheet or annual net sales in excess of €100 million.
• Listed companies with over 500 employees and a balance sheet in excess of €20 million or annual net sales in excess of €40 million.
  
  

A new European regulation, the Corporate Sustainability Reporting Directive (CSRD), has since caught the attention of many businesses.

This is a significant development because it will tighten up the legal framework for corporate sustainability reporting, extending this obligation to a wider range of companies.

The legislation was passed in December 2022 and will be effective in France from 2024, impacting:

• All large European companies, listed or unlisted, that exceed one of the following three thresholds:
  • 250 employees.
  • €40 million in annual sales.
  • €20 million in annual balance sheets.
    
• European subsidiaries and branches of non-European companies, if their sales exceed €150 million within the European Union.
• All companies listed in European-regulated markets, except micro-enterprises.
  
  

This last point is a big deal for SMEs, as it means they may also be subject to mandatory ESG reporting if they’re listed. They will, however, qualify for simplified and less stringent reporting procedures.

In all, nearly 50,000 companies across Europe will be affected (compared with 10,000 previously).

The changes will be phased in gradually, and the calendar has already been published on the official website of the Autorité des Marchés Financiers (Financial Markets Authority).

Even if your company won't be subject to mandatory ESG reporting, there's a variety of benefits to doing it anyway. Many entrepreneurs, eager to demonstrate their social and environmental credentials, have already introduced ESG reporting on a voluntary basis.

Why bother? Here are some of the benefits:

This is one of the primary reasons companies are opting to produce ESG reports. And there's certainly no need to be topping the charts on environmental and social issues before getting started. It's one of the best ways to take stock of your company's current situation, while also identifying your strengths and areas for improvement.

These valuable insights will enable you to build an effective CSR strategy according to your company's specific circumstances.

According to a study published by Edie, a media outlet specializing in sustainable development, almost 74% of investors are more eager to get involved with businesses that meet ESG criteria.

Responsible investment is currently the prevailing trend in finance circles. Against this backdrop, extra-financial criteria are as important as economic performance. Investors are even reaching out to external specialists to analyze and judge the reliability of ESG data that companies disclose - further evidence that sustainability is a key factor in their decision-making.

Employees are increasingly mindful of social and environmental issues. Getting started with ESG reporting is therefore a great way to promote your employer branding, showing your people and candidates that you share similar values.

By showcasing your commitment to these causes, you’re more likely to build a strong company identity, retain your employees, and attract new recruits.

ESG reporting can also help businesses to reduce costs. Equipped with an extensive breakdown of your operational expenses, you can start cutting down on waste and introducing circular-economy practices to make savings.

In real terms, companies that start producing ESG reports are more likely to:

• reduce energy and water consumption,
• manage and recycle waste efficiently,
• limit consumption by sharing, leasing, reusing, repairing, or refurbishing products and materials.

ESG reporting also means full transparency - no marketing tricks to spin a story or paint a false picture. Your company agrees to share all its data: the positive, the negative, and everything in between.

But this level of transparency pays off. Whatever your results, you’ll be able to build solid, trusting relationships with investors, partners, and stakeholders to set your business up for a healthy future.

Curious about ESG reporting, but don't know where to start?

Here are some tips to help you get up and running.

ESG reporting demands a lot of time and energy. There are so many issues to deal with, and there’s plenty of data to handle. Getting it done right isn’t easy, especially on your own steam.

If you don't have the resources in-house, it’s worth calling in a consultancy firm that will offer bespoke advice and help you adapt your processes. In addition, they’ll bring experience and credibility to your project; you’ll be sending a strong message to various stakeholders that you’re taking the report seriously.

You can also contact specialists for one-off projects, such as calculating your carbon footprint or establishing a CSR strategy.

Setting up an internal team all depends on the size of your company. Large businesses will usually have the resources and people-power to assemble a group of passionate, motivated employees to drive ESG reporting forward. But if you're a small or medium-sized business, it should be enough to designate one or two key representatives to take responsibility of the project.

For extra support, consider recruiting an ESG expert and offering training to any employees who are eager to get involved.

ESG reporting involves collecting a wealth of data, and as a manager, you may not have easy access to all this information. To get the most reliable, accurate data possible, you’ll need all hands on deck:

• Human resources play a key role and have valuable information on diversity and inclusion.
• Legal, risk, and compliance teams are in the best position to provide data on risk management and stay on top of the latest regulations.

Your report must meet recognized standards to make it worth your time and effort.

If your company is going to be affected by the CSRD directive, then you'll need to follow the standards laid down by this law. In this case, enlist the help of experts to ensure your report is 100% compliant.

If you’re implementing ESG reporting on a voluntary basis, you can work with trusted frameworks such as:

• Global Reporting Initiative (GRI).
• Sustainability Accounting Standards Board (SASB).

Avoid reports that are evasive, vague, or lacking in supporting figures - everything you say must be backed up by reliable evidence and solid data.

Using a data-management solution is the best way to ensure the data you collect is airtight. You and your stakeholders can rest assured that you’re gathering consistent information, without spending hours checking and correcting it.

Many major companies publish their ESG reports online. Every year, IBM and McKinsey produce extensive reports about their commitments, available to download on dedicated website pages.

These documents are almost a hundred pages long. Of course, if you're a small or medium-sized business, you probably won't have as much data to work with, but these examples can certainly inspire you when it comes to structuring your own report.