Reporting on environmental, social and governance (ESG) matters is an increasingly crucial area of corporate compliance. While ESG reporting and disclosure apply primarily to public companies, there are efforts aimed at requiring private companies to also report on these matters. For example, the European Union’s Corporate Sustainability Reporting Directive requires private organizations that meet specific criteria to publish social and environmental risks and their impacts.
The basics
ESG reports address the demand from governments, investors, consumers and activists for companies to adopt sustainable and socially conscious business practices. They also help companies achieve compliance with the growing number of ESG-related laws and regulations.
ESG reporting is a relatively new area of corporate governance and is of interest to stakeholders worldwide. Numerous reporting frameworks and standards currently exist. Regardless of the format, the goals of ESG reporting are 1) to provide transparency about ESG-related activities and 2) to satisfy regulatory requirements, if applicable.
Additionally, by focusing on ESG, management can improve their understanding of the business’s operations and approach to risk management. In some cases, this can also create a competitive edge in the marketplace.
Producing high-quality reports backed by accurate data is challenging, particularly for companies with domestic and international operations. The evolution of existing standards and the introduction of new approaches complicate the reporting process.
ESG audits
According to a recent study by the American Institute of Certified Public Accountants, Chartered Institute of Management Accountants and International Federation of Accountants (IFA), 98% of large companies report on sustainability. While conducting an ESG audit is optional in all jurisdictions, it’s a best practice for many companies that issue reports. Of the companies included in the recent study, 69% obtained some level of assurance.
There are typically two levels of assurance. The most common type is a review, which provides limited assurance and doesn’t automatically include site visits. An examination, which delivers a higher level of assurance and is more involved, applies many auditing techniques and often includes site visits.
Benefits for private companies
While most private companies aren’t required to report on ESG issues, voluntary reporting can build trust with investors, lenders, employees, customers and other stakeholders. Additionally, producing an ESG report may help private companies establish and maintain their reputations and improve access to investment capital.
An ESG audit can uncover risk, allowing private companies to minimize their exposure and potential losses. At the same time, auditing ESG-related aspects of operations can highlight cost savings and possible efficiency gains. Producing an ESG report can also help to attract and retain employees, ensure your business can respond quickly to supplier demands for sustainable practices, and prepare for potential future regulations that could apply to private companies.
We can help
ESG reporting allows you to communicate responsible business practices to stakeholders. Even if your business isn’t yet required to produce ESG reports, doing so voluntarily can demonstrate your commitment to this increasingly important financial reporting issue. Contact us for help reporting ESG matters in a transparent and accurate manner.