Businesses are adopting ESG rapidly in their operations to seize the business opportunities it holds. A holistic ESG programme comprises of setting ESG goals and targets, improving ESG working group’s capabilities, implementing ESG initiatives and communicating ESG commitments and progress to the stakeholders. 2023 has been a critical year for the development of ESG reporting practices. We could see new reporting regulations enacted and consolidation and standardisation of existing ESG reporting frameworks and standards. This article helps you to:
- Navigate the dynamic and evolving ESG reporting landscape;
- Recognise the well-adopted ESG reporting frameworks and standards; and
- Choose the choose the best ESG reporting frameworks and standards for your company.
At the end of the article, you will hold a better grasp of the current ESG reporting practices and gain clarity to take next action.
Table of Contents
The ESG Reporting Landscape
As investors are becoming more cautious in where they put their funds in, evidence-based decision making which relies on credible data and information has become more crucial than ever. Because of this phenomenon, the ESG reporting frameworks and standards are mushrooming and the governments are also pushing for mandatory reporting to enhance the data availability and transparency. The ESG reporting landscape is currently in a dynamic and evolving phase, marked by both established practices and emerging trends. The key features you should take note are as follows.
1. Standardisation
The ESG ecosystem is fragmented, especially on the reporting side. The growing number of voluntary ESG reporting frameworks and standards (GRI, SASB, TCFD, CDP, IFRS, ESRS) published by different organisations creates an “alphabet soup” challenge for companies navigating reporting requirements.
A desperate call on standardisation and consolidation of existing and future reporting practices are answered which resulted in harmonisation of reporting standards and convergence of standard bodies. Recent developments like the EU’s Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) aim to bring more standardisation and mandatory reporting on specific aspects like climate change.
On a local scene, the Bursa Malaysia Sustainability Reporting Framework Capital Market Malaysia Simplified ESG Disclosure Guide are aligned to global reporting standards (GRI, SASB, FTSE4Good, RSPO, GHG Protocol, TCFD, IFRS) to prepare Malaysian businesses to navigate in the international market.
2. Focus on materiality and impact
Some ESG reporting standards comprises of over 100 disclosure items, but are all relevant to your company? Emphasis is moving towards focusing on metrics that have a real impact on company’s sustainability performance and stakeholder interests. The prioritisation process will greatly help in optimising the resources needed to produce an ESG report.
Advancing from single materiality, companies are expected to adopt double materiality in their reporting practices where both their impact on environmental and social issues and how these issues impact their business have to be disclosed. While general metrics are well-accepted by companies of all sizes and sectors, industry-specific and forward-looking metrics are gaining traction to help investors assess a company’s ESG risks and opportunities more effectively.
3. Technology and data advancements
As ESG reporting practices will become a routine for companies, there is a need for technology which can help companies to digitalise and automate data collection, reporting processes and integrate ESG into core business functions. ESG data platforms and analytics tools help companies to track and analyse ESG performance, identify risks and opportunities, and improve reporting accuracy. The use of emerging tools, including AI, will effectively improve the efficiency of ESG reporting practices. Besides that, integrated reporting which combines traditional financial reporting and ESG disclosures are emerging to courage companies to connect their business strategy with ESG performance, demonstrating how they are creating value for all stakeholders.
Although the ESG reporting landscape is gaining lot of momentum, challenges and concerns arise alongside. Concerns exist about the data integrity and potential greenwashing practices. Robust data collection and verification processes are important to minimise the risks of misinformation. Moreover, cost of implementing and maintaining effective ESG reporting systems can be a burden for companies, especially for smaller companies. Enabling institutions such as standard-setters, regulatory bodies, industry associations, etc. are urged to provide necessary support and resources to encourage the adoption of ESG reporting practices among companies.
The critical issue to tackle at this moment is closing the knowledge gap and bridging the ESG skills gap. Gaining clarity on how your company can tap onto the opportunities in the ESG storm is the first step to achieve your business sustainability.
Top 3 ESG Reporting Frameworks and Standards
There are numerous ESG reporting frameworks and standards published by different organisations, each with its unique strengths and target audience. These are some of the reputable and well-adopted reporting frameworks and standards for your reference to begin or enhance your reporting practices.
Global
Key features:
- Offers comprehensive and flexible set of reporting standards covering economic, environment and social impacts, providing a holistic view of a company’s sustainability performance
- Widely recognised by stakeholders and investors
- Emphasises transparency and stakeholder engagement
Target audience: Organisations of all sizes and sectors
Key features:
- Provides industry-specific accounting standards
- Focuses on financially material ESG issues for 77 industries
- Aligns with information most relevant to investors
Target audience: Businesses from 77 industries
Key features:
- Provides a framework for companies to disclose the financial risks and opportunities associated with climate change
- Encourages companies to conduct scenario analysis to assess the potential impact of different climate change scenarios on their business
- Can be used alongside other ESG reporting frameworks
Target audience: Businesses of all sizes and sectors
Malaysia
Key features:
- Offers a comprehensive framework tailored to the Malaysian context
- Provides industry-specific reporting guidance and aligning with global best practices
- Emphasises on materiality assessment, stakeholder engagement and GRI principles
Target audience: Companies listed on Bursa Malaysia stock exchange
- Global Reporting Initiative (GRI)
Refer to above description.
Key features:
- Focuses on environmental impact of a business, including greenhouse gas emissions, water usage and deforestation
- Encourages companies to engage with suppliers on environmental issues, promoting transparency and collective action throughout the value chain
- Provides companies with an annual score based on their performance, allowing benchmarking against peers and identifying areas for improvement
Target audience: Businesses of all sizes and sectors
Workshop
ESG和永续发展工作坊
透过我们的 ESG 和永续发展工作坊探讨ESG 风险和业务永续发展机遇。本次工作坊将探讨 ESG 和永续性、报告、利益相关者参与以及碳边界调整机制 (Carbon Border Adjustment Mechanism, CBAM) 等全球趋势的基础知识。