Can companies create an 'excellent ESG report' in today's booming ESG field?
Explore the core elements of excellent ESG reporting
Many institutions have provided detailed writing guidelines, indicator systems, and evaluation standards for "What is an excellent ESG report" (covering social responsibility reports and sustainability reports). However, how to define an 'excellent ESG report' beyond technical details remains a controversial topic.
Behind this topic lie two core issues of ESG reporting.
The primary issue is, who does ESG reporting serve? This is the fundamental issue at hand, which is why companies release ESG reports annually.
There are various answers to this question, such as meeting regulatory requirements, attracting investors, winning the trust of stakeholders, building sustainable competitiveness, shaping brand image, etc. But ultimately, its goals can be summarized into two points: first, to promote the sustainable development of the enterprise; The second is to enhance stakeholders' understanding of the enterprise, thereby gaining its recognition and support.
These two goals are both interrelated and potentially conflicting, as the interests of businesses and stakeholders are not always completely aligned, and sometimes even contradictory.
The daunting task facing corporate ESG teams is how to prepare an 'excellent ESG report' that meets these potentially conflicting demands simultaneously?
Secondly, the second core issue of ESG reporting is whether it can effectively achieve the communication and participation goals of stakeholders?
The answer is not optimistic.
In today's social environment, the operational environment of enterprises has undergone profound changes, and its stakeholders, including regulatory agencies, investors, employees, consumers, the public, etc., have raised higher expectations for the disclosure of ESG information by enterprises.
They not only demand comprehensive, timely, accurate, effective, and substantive disclosure of ESG information, but also emphasize "participation", which means not only listening to what companies say, but also engaging in dialogue with them. However, publishing ESG reports is essentially a one-way, information asymmetric 'disclosure strategy'.
In addition, although some companies (such as Ping An and Industrial and Commercial Bank of China) have started disclosing semi annual ESG reports to meet the growing disclosure needs of stakeholders, from the perspective of stakeholders, such semi annual disclosures still appear slow. When a company experiences significant ESG related events, stakeholders need timely, efficient, and useful information disclosure.
At the same time, different stakeholders have different focuses on corporate ESG information, sometimes even conflicting with each other, making it difficult for companies to meet the needs of all stakeholders with one ESG report.
Five major challenges in preparing ESG reports
In addition to the two core issues mentioned above, companies also face some practical challenges when preparing ESG reports.
Firstly, there is the issue of trust. Some companies are eager to attach the "ESG label" and there is a phenomenon of "reporting for the sake of reporting". Due to the time required for the implementation and manifestation of ESG planning results, some companies have only renamed their original reports in order to release ESG reports. The content lacks clear ESG practices and effectiveness support, leading stakeholders and the public to doubt its authenticity and believe that the company is suspected of "greenwashing".
Next is the problem of relationships. Due to the different expectations and demands of stakeholders towards the enterprise, these expectations and demands may complement or conflict with each other. Enterprises find it difficult to balance the concerns of all stakeholders in a single report.
The third is logical rupture. Many companies tend to focus on a particular ESG project or event when preparing ESG reports, but overlook the connection between these projects or events and the company's sustainable development, resulting in a logical break and stakeholders being unable to make effective decisions and judgments on the company's sustainability based on this information.
The fourth is data abuse. On the one hand, more and more companies tend to use data to speak for themselves, extensively using data in ESG reports without explaining the source and meaning of the data; On the other hand, the current ESG indicator system is mostly based on global backgrounds and the practices of large multinational corporations. For Chinese domestic enterprises, many indicators and corresponding data do not have practical significance.
The fifth issue is homogenization. Due to the late start of ESG in China, many companies are still in the early stages of ESG work, with similar ESG issues and projects within the same industry. Based on this, ESG information disclosure is difficult to form a differentiated corporate image in the minds of stakeholders.