Environmental, Social, and Governance (ESG) reporting is companies’ method to evaluate their environmental, social, and governance goals and track records. This metrics system provides a brief overview of a business’s achievements and/or challenges in three major areas. Investors are able to see the long-term value of their investments, and consumers are able to evaluate the sustainability of their purchases and how much good or damage they are doing to society and the environment.

Why a policy is needed
Every company is advised to have an ESG compliance and reporting policy and strategy in place. The main purpose is to adhere to national and global ESG standards related to sustainability, social justice, and leadership that thousands of other companies follow and which will become compulsory for all.

The need for corporate transparency has increased due to increased rates of financial fraud, whistleblowing, and data breaches online. Companies are being asked to be more conscious of choices made in their leadership. They are being forced to consider the environmental risks of their actions, the risks to public health and safety, and their role in reducing widespread fraud and corruption in business.

The reporting process
The majority of companies that are listed on major stock exchanges publish annual ESG reports. The reports are released to show their current levels of corporate sustainability. The information is provided voluntarily, but it’s recommended to reveal the company’s commitment to meeting ESG criteria. In addition, there are growing considerations to include mandatory ESG data reporting in corporate laws.

However, there are a number of faults in ESG reporting because every industry has different methods of reporting information. The lack of a national or global consensus, such as the International Organization for Standardization (ISO) that regulates international standards, makes it more difficult to meet high-quality ESG standards. For some companies, the costs of collecting and reporting data are too high. As a result, the lack of a consensus of standards makes it difficult or impossible for investors to review high-quality data and make well-informed decisions.

Promoting sustainable business practices
All businesses are encouraged to develop ESG strategies to improve their industry performances and public images as this will help them be competitive. They must develop a reporting and a scoring system that provides a general overview of various ESG performance metrics. Investors use the information that is collected from ESG compliance and reporting to determine a company’s overall value and growth potential.