3 sustainability reporting challenges and how ESG guidelines can help

Reporting on sustainability efforts today presents new challenges for organizations. Recent regulations require companies to disclose their environmental impact, not only to the benefit of investors, but also to signal the need for real change. In light of the recent Supreme Court ruling as far as the EPA is concerned, finding a framework that is consistent and usable seems even more daunting. From evolving metrics to lack of insight, it’s no surprise that many business leaders are losing money.

However, by solving the challenges and taking the necessary steps to fill the gaps, companies can take advantage of the SEC’s Environmental, Social, Governance (ESG). reporting requirements to point them in the right direction.

Industry-wide, it is noted that companies that track carbon emissions and climate statistics outperform both investors and consumers. In reality, 80%-90% of emissions are created within corporate supply chains and consumer use. With the SEC looking to include Scope 3 issues in reporting requirements, supply chains may soon come under scrutiny for many large companies. Increasing reporting needs could be even more challenging, as suppliers, transportation and many other key business services would be included in the company’s emissions. The success of companies in reporting sustainability initiatives rests not only on communication and education for their companies, but also for those from which they choose to procure goods and services.

ESG Reporting Challenges

There are three major reporting challenges that companies face in sustainability reporting.

Broad definitions of sustainability cause confusion

It’s no secret that ‘sustainability’ is the latest buzzword across all industries. Sustainability generally refers to the relationship between a company and the environment. More specifically, the SEC’s ESG disclosures are a new industry standard of reporting for investors and stakeholders. Another way to look at these terms is to view sustainability as internal and ESG reporting as external. But because these terms can seem interchangeable, they confuse leaders, and the statistics can be even more confusing.

For companies that want to start with more environmentally friendly initiatives, it is necessary to choose a reporting framework and stick to it. ESG reporting reveals not only environmental data, but also social and corporate governance data. These reports can give investors a better understanding of a company. Following a framework such as ESG will also significantly reduce frustrations in developing internal initiatives.

Communication and education are essential for companies that have to do Scope 3 emissions reporting. Ensuring that suppliers and other service providers are ready and able to document their emissions and pass reports on to their customer companies is essential to successful reporting. The trajectory to Scope 3 emissions means that large companies have the potential to drive real change in overall carbon emissions.

Uncertainty about necessary frameworks

For many companies, the problem is not the need for sustainability reporting, but the uncertainty of which metrics to use. Metrics are constantly changing as information about environmental impacts changes. Because reporting standards are still evolving, it is difficult for organizations to keep up with data management and meaningful reporting.

Much future regulation needs to standardize and improve compliance and clarity. The new reporting standards are already affecting the largest companies. Mars, Inc. reports, for example, that nearly 95% of emissions are beyond its direct control, as it includes the goods and services of nearly 20,000 suppliers. Due to diligence in its sustainability initiatives, Mars reported that “80 of Mars’ top suppliers, accounting for 25% of its footprint, are now on track to set science-backed targets as a result.” Addressing emissions at the supply chain level will be difficult, but doable and required by both consumers and investors.

For the foreseeable future, companies will be in a good position to report if they not only choose a framework, but also look at a specific regulatory entity. Most will review SEC guidelines when deciding to report on ESG efforts, as these are publicly reported metrics and are increasingly regulated.

According to Kirkland & Ellisthe SEC is proposing additional required disclosures regarding:

1. Diversity of the board of directors and management
2. Climate-related risks and the impact on business
3. Processes for identifying climate risks
4. Scope 1 and 2 greenhouse gas emissions (GHG)
5. Scope 3 GHG emissions, or reduction targets and targets to include Scope 3 emissions
6. 6. Publicly disclosed climate targets or targets, plans to act on those targets, and methods of analysis

Evolving industry regulations and industry expectations

Reporting requirements related to environmental measures are evolving. While this can be a time of uncertainty, it’s vital as a business to remain flexible and adaptable. Developing specific goals in line with business objectives will serve your business well. Keep track of risk areas and carefully document the metrics in your plan. Following a structure such as the SEC’s ESG reporting guidelines provides specific guidance for otherwise ambiguous processes.

Set up an ESG committee to keep communication open and consistent. Members of this committee may represent any area and strive to fulfill a specific framework, such as SEC guidelines, with leadership support. Start with communication to educate and align entities with a solid documentation process.

Experts in the waste industry and financial institutions argue that adjusting behavior according to ESG guidelines can communicate a company’s risks and effects more effectively. As regulations fluctuate, it is critical to have an internal standard process for documenting environmental impact in order to remain flexible. These SEC requirements are intended to restore the need for consistency, quality and comparability of climate-related disclosures. Transparency in this kind of data is beneficial not only for investors who want to choose solid partners for a greener future, but also for consumers to wisely judge which products they want to use in their daily lives.

Graham Rihn is founder and CEO of RoadRunner Recycling