Sustainability storytelling: A short guide to writing an annual ESG report

Roger Lewis, UKSIF Membership Committee Member

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

This website should not be taken as financial or investment advice or seen as an endorsement or recommendation of any particular company, investment or individual. While we have sought to ensure information on this site is correct, we do not accept liability for any errors.

 

Sustainability storytelling: A short guide to writing an annual ESG report

Roger Lewis, UKSIF Membership Committee Member

The Millennium, ‘Y2K’, gave us a Dome, a Bridge, a Bug for 11:59:59pm on December 31st, 1999 and ten Development Goals. These Goals aimed to help the future planet and future people meet their needs without compromising our own, the classic definition of sustainability. Twenty five years ago, a bit of reporting and donations to charities made up the bulk of ‘corporate social responsibility’ and efforts to meet these Goals, since rebranded the 17 UN Sustainable Development Goals. Such CSR came when companies had cash left over after paying dividends and interest, or after financing growth and expansion strategies.

But reporting alone is not a substitute for meaningful action. And while well intentioned, there are pitfalls with sustainability reporting. One risk is that focus on disclosure distracts from tangible sustainability outcomes. Another is too much inconsistent or incomplete data, leading to greenwashing. It is a complex topic that we are trying to summarise progress in. So before even picking up a pen, a sustainability report should understand four basic factors.

In the past year, what were the greatest material issues and impacts that you faced? Ninety plus factors make up ‘ESG’. Data providers and active investors can say what these risks, opportunities and exposures are for a company, and how well they are being managed.

Keeping the audience in mind is a good principle. Who are your stakeholders, what is their influence and interest in sustainability, and how can they help? Ideally the readers are critical to achieving sustainability goals, whether it is revenue from green products or environmental and societal upsides.

Next, what challenges did you face? Potentially shifting priorities with the digitisation and AIfication of everything. Or policymakers sending mixed signals. Take a large cap European company with over 50,000 staff but less than EUR50m revenue. Before it had to report detailed sustainability metrics, but now we’re not sure after the so-called EU Omnibus regulation. Or challenges from disruption to operations (read: suppliers in areas prone to wildfires, like California).

Last, what actions did you take? Getting a fund labelled for sustainability is real and material example, and means joining 7,500 funds and $3tr, globally and not just among EU SFDR peers. Another is engaging a portfolio company to recognise transition and physical climate risks, or screening suppliers for ESG risk in procurement – solar panels from forced labour for anyone? – as an area under a company’s direct control.

Now we can begin to type and create something compelling. Start by looking inwards and core environmental, nonfinancial metrics. Carbon is a must, up to scope 3 if you don’t want to be accused of ‘transition-washing’ and overstating your initiatives for climate. Water, waste and biodiversity footprints can also feature if material to a sector. Engaging colleagues and communities, and standard corporate governance declarations for risk, shareholders and boards complete this section.

And then look outwards. For investors, this means how many tonnes of CO2 their debt and equity financed, and how they engaged their portfolio companies to achieve positive outcomes. For companies, it’s environmental and social efforts, and processes and policies in place to implement. For both, frameworks for standardisation and validation help to avoid overwhelming stakeholders with data while providing little actionable insight. So we have TCFD, TNFD, CDP, ISSB and GRI as the top picks to consider.

Doing all this should leave your audience, human or AI, thinking that your organisation has just communicated a credible and robust strategy for sustainability. One which is suitable for a quarter of a century and much planetary and societal upheaval since the Millennium.

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

This website should not be taken as financial or investment advice or seen as an endorsement or recommendation of any particular company, investment or individual. While we have sought to ensure information on this site is correct, we do not accept liability for any errors.