Best practices in ESG Reporting: enhancing corporate responsibility

Common ESG reporting frameworks and standards

Selecting the right ESG reporting framework is crucial for companies aiming to meet both regulatory requirements and stakeholder expectations. Several established frameworks guide businesses in measuring and reporting on their ESG performance, helping them ensure consistency, transparency, and comparability across industries.

Popular ESG reporting frameworks and standards include:

Global Reporting Initiative (GRI)

One of the most widely used frameworks globally, GRI focuses on sustainability reporting and addresses topics such as climate change, human rights, and labor practices. The GRI standards are designed to be comprehensive and applicable across sectors, making them suitable for large multinational corporations like Unilever.

Sustainability Accounting Standards Board (SASB)

SASB is particularly useful for companies looking to report on financially material ESG topics. It provides industry-specific standards that help businesses link their ESG efforts directly to their financial performance. For example, SASB standards may guide a manufacturing company in reporting on water usage and pollution control, while a tech company might focus on data privacy and energy consumption.

Task Force on Climate-related Financial Disclosures (TCFD)

Focused on climate-related risks and opportunities, TCFD helps companies integrate climate-related issues into their financial reporting. It’s particularly important for organizations in high-emission industries like energy and transport, where climate risks can have a significant financial impact.

For instance, Shell uses TCFD guidelines to report on how it is managing risks related to the global energy transition.

Corporate Sustainability Reporting Directive (CSRD)

As the new regulatory framework for European companies, CSRD mandates that large companies disclose more detailed information on sustainability, including their impact on the environment, social issues, and governance. This directive is set to affect thousands of companies, making it crucial for businesses operating in Europe to comply.

Key ESG metrics and performance indicators

Identifying and tracking key ESG metrics is essential for companies looking to improve their sustainability performance and demonstrate accountability. Accurate data collection and analysis are critical to tracking these metrics effectively. Companies must ensure their ESG data is reliable and reflects real-world outcomes.

The following performance indicators help businesses measure progress in areas such as environmental impact, social equity, and governance practices.

Environmental metrics

These performance indicators include:

• Carbon emissions
• Water usage
• Waste management

Reducing carbon footprints and transitioning to renewable energy are key goals for many organizations. IKEA, for instance, tracks its carbon emissions to align with its goal of becoming carbon positive by 2030.

Social metrics

These are indicators related to:

• Labor practices
• Diversity, equity, and inclusion (DEI)
• Human rights

Companies should track progress in areas such as employee well-being, gender diversity, and supplier standards. Nike reports extensively on its labor practices within global supply chains, highlighting how it addresses worker safety and ethical sourcing.

Governance metrics

Governance indicators focus on:

• Board diversity
• Executive compensation
• Shareholder rights
• Anti-corruption efforts

Governance metrics often involve linking executive compensation to ESG performance, ensuring that leadership is accountable for achieving sustainability goals. Microsoft, for instance, has tied executive bonuses to their sustainability objectives, reinforcing the importance of aligning leadership with long-term ESG performance.

Best practices to strengthen ESG reporting for long-term success

Effective ESG reporting is about more than just meeting compliance requirements – it’s a powerful tool for identifying risks, improving decision-making, and aligning sustainability with your overall business strategy.

From managing key ESG risks to engaging stakeholders and reporting on climate change, companies need a clear approach to build trust and ensure transparency.

The following sections will guide you through essential best practices to enhance your ESG reporting, manage risks, align with business goals, and meet regulatory requirements. Whether it’s using data to inform decisions or effectively communicating sustainability efforts, these strategies will help you create a robust, impactful ESG reporting process.

1. Identify and manage key ESG risks

Materiality assessments are essential for identifying the ESG issues that matter most to your business and stakeholders. Focusing on the most relevant risks helps improve the quality of your ESG reporting and strengthens your sustainability strategy.

Here’s how materiality assessments can help you manage key risks:

• Climate-related risks. Many industries face significant risks due to climate change, such as extreme weather, regulatory changes, or shifting consumer demand. Using frameworks like TCFD, businesses can identify and report on these risks to mitigate their impact. 
• Supply chain risks. Companies must assess risks like human rights violations, environmental damage, and legal compliance in their supply chains. Proactively managing these risks improves transparency. 
• Governance risks. Weak governance can lead to regulatory fines and reputational damage. Regularly conducting materiality assessments helps companies prioritize governance issues that affect both stakeholders and performance.

Materiality assessments help ensure that your ESG reporting is focused, relevant, and impactful by identifying and managing these critical risks.

2. Improve data collection

Accurate ESG data collection is crucial for transparent and reliable ESG reporting. Without the right data, companies can’t effectively track their ESG performance or make informed decisions about sustainability efforts. Here are some strategies to enhance your data collection process:

• Leverage technology for data management. Automating the ESG data collection process with specialized software can streamline reporting and ensure consistency. Platforms like Enablon and Datamaran help businesses collect, analyze, and report ESG data in real time, making the process more efficient.
• Utilize established methodologies. Applying recognized methods like lifecycle assessments and carbon accounting standards ensures that your data accurately reflects your environmental and social impact. These methodologies add credibility to your ESG reports by providing robust and meaningful insights.
• Partner with external providers. Collaborating with third-party ESG data providers can help verify the accuracy of your reports and ensure compliance with regulatory requirements. This approach allows businesses to improve decision-making and meet stakeholder expectations with reliable, verified data.

By following these practices, companies can develop a strong ESG reporting process that informs strategic decisions and drives continuous improvement.

3. Align ESG reporting with business strategy

To maximize the effectiveness of ESG reporting, it must be tightly integrated with your company’s overall business strategy. When ESG goals align with core business objectives, companies can drive value creation, enhance decision-making, and achieve sustainable long-term growth.

Here’s how to align ESG reporting with business strategy:

• Incorporate ESG into decision-making. Aligning ESG reporting with your business strategy allows for more informed decision-making that considers both sustainability risks and opportunities. This helps companies stay ahead of market shifts, meet regulatory demands, and remain competitive. For example, businesses that factor climate risks into their strategic planning can better mitigate financial impacts and seize growth opportunities.
• Tie executive compensation to ESG performance. Follow the example of Unilever – a company that increasingly links executive compensation to its ESG metrics. This ensures that leadership is accountable for driving sustainability efforts, making ESG a measurable, incentivized priority across the organization.
• Strengthen governance structures. By aligning ESG reporting with corporate governance, businesses can ensure ESG considerations are embedded into operational and strategic decisions. Companies with robust governance structures are better positioned to manage stakeholder expectations and navigate complex regulatory requirements.

When ESG reporting is integrated into the overall business strategy, companies can create a growth roadmap that balances profitability with sustainability, ensuring both financial success and long-term resilience.

4. Engage stakeholders

Engaging stakeholders in the ESG reporting process is essential for building trust and aligning your sustainability efforts with their expectations.

Here’s how to engage stakeholders effectively:

• Proactive communication. Engage stakeholders early in the reporting process to identify their key concerns and expectations. This ensures your ESG reporting addresses the most relevant issues for both the company and its stakeholders.
• Transparent in reporting. Keep stakeholders informed with regular updates on ESG performance. Transparent communication builds trust with shareholders, investors, and communities. For example, Danone has successfully maintained strong relationships by providing frequent updates on its sustainability efforts.

Proactively engaging stakeholders can help you create an ESG strategy that reflects their concerns and maintains transparency and accountability.

5. Include ESG initiatives and sustainability efforts

Transparent reporting on ESG initiatives is critical to demonstrating the company’s progress toward sustainability goals. Whether it’s reducing carbon emissions, improving labor conditions, or enhancing community engagement, businesses need to effectively communicate their efforts to stakeholders.

Best practices for reporting ESG initiatives and sustainability efforts include:

• Being transparent about challenges and successes. Companies should share both their achievements and the challenges they face in meeting their sustainability goals. For instance, IKEA regularly reports on its progress toward becoming a circular business but also highlights the difficulties in reaching this goal.
• Providing real-world examples. Case studies and real-world examples of ESG initiatives in action help stakeholders understand the tangible impact of the company’s efforts. For example, Adidas frequently highlights its use of recycled materials in its products to showcase its commitment to sustainability.
• Communicating the impact on stakeholders. Whether it’s reducing the company’s environmental footprint or supporting local communities, companies should clearly communicate how their sustainability initiatives benefit stakeholders. Coca-Cola, for instance, uses its ESG reports to highlight how they are reducing water usage and supporting local water stewardship programs.

By being transparent and providing concrete examples of progress, companies can build credibility and demonstrate their commitment to sustainable practices.

6. Report climate change efforts and environmental impact

As concerns about climate risks continue to rise, companies must take steps to measure their carbon footprint, reduce emissions, and protect natural resources.

Best practices for environmental impact reporting include:

• Measure and reduce carbon emissions. Companies must accurately track their greenhouse gas emissions and set clear goals for reducing their carbon footprint. Apple and Google have committed to becoming carbon-neutral, and they regularly report on their progress in reducing emissions across their operations.
• Report on biodiversity and ecosystem protection. For companies that rely on natural resources, reporting on efforts to protect biodiversity and restore ecosystems is critical. Unilever, for example, reports on its efforts to improve biodiversity through sustainable agriculture initiatives.
• Disclose climate-related financial risks. Companies should also disclose how they are managing climate risks and integrating them into their financial planning. TCFD provides guidelines on how businesses can assess and report on climate-related risks and opportunities.

Addressing environmental impact in ESG reporting demonstrates that your company is committed to addressing one of the world’s most pressing challenges: climate change.

7. Report on social responsibility and community impact

Social responsibility reporting provides an opportunity for companies to showcase how they are contributing to society and supporting the communities in which they operate. From labor practices to community engagement, businesses must be transparent about their social impact.

These are the key social responsibility areas to report on:

• Labor practices and human rights. Companies must report on how they are ensuring fair labor practices and protecting human rights throughout their operations and supply chains. For example, Levi Strauss & Co. report on their efforts to improve working conditions in factories and ensure ethical sourcing of materials.
• Community engagement. Many companies engage with local communities through charitable programs, volunteer efforts, and partnerships with non-profit organizations. Starbucks, for instance, regularly reports on its community service initiatives and how it supports local farmers through its ethical sourcing program.

Social responsibility reporting demonstrates that your company values not just profits but also the well-being of people and communities.

8. Incorporate governance practices

Governance practices are a critical component of ESG reporting. Strong corporate governance ensures that the company is managed responsibly, with a focus on transparency, accountability, and long-term value creation.

Here’s what to include in governance reporting:

• Board diversity and structure. Companies should report on the composition of their boards, highlighting diversity in terms of gender, race, and experience. Studies show that companies with diverse boards tend to perform better financially and are more innovative.
• How executive compensation is linked to ESG. Increasingly, companies are tying executive compensation to ESG performance. This ensures that leadership is accountable for achieving sustainability goals and aligns the interests of executives with those of stakeholders. Unilever, for example, links a portion of its executives’ bonuses to their progress on sustainability targets.
• Anti-corruption and compliance. Reporting on anti-corruption measures and compliance with legal standards is essential for maintaining stakeholder trust. Detail the processes they have in place to prevent fraud and ensure ethical behavior at all levels of the organization.

By reporting on governance practices, companies can demonstrate that they have strong leadership in place to support long-term sustainability goals.

How ESG reporting drives better decisions and financial growth?

Effective ESG reporting not only benefits stakeholders but also enhances a company’s ability to make informed decisions that drive both sustainability and financial performance.

By tracking ESG practices and setting benchmarks for improvement, companies can ensure continuous growth and resilience in the following ways:

• Setting benchmarks for performance. Tracking performance against benchmarks helps companies assess how they are performing relative to their peers. This can inform strategic decisions and help businesses set realistic sustainability goals.
• Developing a roadmap for future growth. ESG reporting provides the insights needed to create a long-term growth strategy. Companies that proactively integrate sustainability into their business strategy are more likely to achieve long-term success and financial resilience.
• Investing in sustainable finance. ESG reporting supports access to sustainable finance by demonstrating a commitment to responsible practices. This approach not only attracts investors focused on sustainable growth but also aligns the company with financial opportunities that reward environmental, social, and governance progress.

ESG reporting supports decision-making by providing a clear roadmap for future growth and aligning financial performance with sustainability goals.

The future of ESG reporting

As ESG reporting evolves, companies will need to continuously refine their reporting processes, set ambitious sustainability goals, and engage with stakeholders to remain competitive. The future of ESG reporting will push businesses to go beyond regulatory compliance and focus on creating lasting value for society, the environment, and their shareholders.

At IMD, we equip leaders with the tools to integrate ESG strategies into their business models for long-term success. Our “Measuring and Managing Sustainability Impact” helps leaders with ESG reporting, building sustainable strategies, and driving meaningful change. Participants learn to enhance decision-making, improve stakeholder engagement, and ensure that their sustainability efforts deliver real impact.

Explore how IMD’s programs can support your company’s journey toward more effective and transparent ESG reporting.