How to Prepare an ESG Report: Part 2

Taylor Gray, Ph.D.
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July 13
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10 min read

In this post

ESG and Sustainability teams we speak with find reporting and communication to be the most challenging parts of their job right now.

In our last newsletter, we set out to help people better understand ESG reporting and communication, and in this newsletter we are going to finish what we started.

In this Part 2, we break-down the characteristics of intended reporting audiences to show exactly where strategic benefits could be realized with novel approaches to ESG reporting.

In our last newsletter, we set out to help people better understand ESG reporting and communication, and in this newsletter we are going to finish what we started (...although we will likely always be talking about ESG reporting and communication in some way…).

So much of ESG performance is not only in what a company does but also in how a company communicates what it does. As we said, for corporate ESG and Sustainability teams, you are not only responsible for developing meaningful programs within your organizations and among stakeholders, but you are also responsible for how these programs are understood across markets and audiences.

Time and again, we witness companies struggling to effectively report and communicate their ESG and Sustainability efforts and outcomes because they have adopted a reporting strategy that simply does not work for them. So why did they adopt this reporting strategy? Because it’s the way almost everyone has been doing it for decades. But times change and, as we said, strategic advantage is not born from un-questioned adherence to tradition.

ESG and Sustainability teams interested in exploring a novel and more effective reporting and communication approach should consider these four questions:

  • Who are the different audiences you are attempting to connect with?
  • Why do you want to engage these audiences?
  • How do these audiences engage with information?
  • What message/information do you want these audiences to internalize?

In what follows, we will work through a few insights into how these questions can actually inform your approach to ESG reporting.

A Matter of Audience

There are many potential audiences, and some may be specific to you, but in sum, all audiences can be understood as belonging predominantly to one of two broad groups: Stakeholding audiences and Shareholding audiences.

Why these two initial categorizations? Because the concept of materiality--the very linchpin of ESG and Sustainability--operates along this same categorization, as we discussed here.

We try to not over-generalize, but we are also trying to break all audiences down into two groups, so please bear with us on this. Naturally a group of individuals could occupy both identities at the same time, even so, however, it is possible to observe that these individuals are incentivized more to one identity over the other across sufficiently long time periods or moments of acute decision-making. Of course there are exceptions, but let’s first plan for the broad middle before we act for the tails.

Brief intermission...

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Understanding Shareholder Audiences

This audience group largely consists of investors and asset managers, commercial lenders, associated capital market participants, regulators, and occasionally employees and partners. So let’s go through a few key details:

ESG Focus: For this broad group, their focus in ESG is about discovering which issues present a risk and/or opportunity to corporate financial performance and how well management is prepared to deal with these. It is ESG as it impacts the company.

Format: These actors are largely interested in comparable data. Whatever their respective focuses, shareholder audiences want to be able to compare a series of standardized data points across multiple companies. Narrative and contextualization are much less important than are empirical data…and the more quantitative the data can appear, the better.

Medium: Most shareholder audiences access ESG information through the services and products of ESG rating agencies and their derivatives. This means most of them are not likely reading company reports or communications directly. Rather, they are buying synthesized data from ESG rating agencies which are processing corporate reports and communications…and by processing, we mean the reports are being analyzed by an algorithm for key words and mentions and possibly reviewed by a research assistant in the event of discrepancies or inconclusive findings.

Alternatively, some among this audience group will supplement, or replace, the ESG rating agencies with their own research associates who do take a deeper dive into company reports and communications. Do note, however, that these hyper-focused research analysts are not reading reports cover-to-cover, rather they have a distinct set of information they are looking for and a refined system for finding it. [Some of us among the Motive team have worked as just such analysts in past lives and trust us that the term ‘hyper-focused’ may actually be an understatement.]

What This Means for You: If these are the types of audiences you are seeking to engage, then consider developing an ESG reporting and communication approach which:

  1. Matches the schedule and general expectations of established financial reporting, meaning an annual report along with quarterly updates covering past performance supplemented by forward looking statements.
  2. Focuses on issues which are considered material from this audience perspective, meaning frame your reports as how ESG issues present as risks and/or opportunities to corporate financial performance.
  3. Provides accurate and comparable data, clearly and unencumbered by overly descriptive narrative or contextualization. Any copy should support a clearer understanding of the data rather than seek to be the story.
  4. Is optimized to be accurately interpreted by increasingly algorithmic-driven processes of ESG rating agencies. Think of this as the SEO of ESG reports.

Understanding Stakeholder Audiences

This audience group largely consists of all stakeholders beyond the financial markets, including community members, special-interest organizations, consumers, and often-times employees. So let’s go through a few key details:

ESG Focus: For this broad group, the focus in ESG is about discovering how corporate performance impacts various environmental, social, and governance developments and how management is addressing these impacts. It is ESG as it impacts the world.

Format: These actors are largely interested in impact and context. This isn’t to say that empirical data is not important, but rather that narrative and context become equally important. Absolute data points on their own are not insightful, while narrative on its own is often misleading, but context supported by data can be enlightening.

Medium: A few members of this audience group may read comprehensive ESG and sustainability reports, but these are the slim minority. A few more may peruse a dedicated section on a web-site or other similar communication collateral. But mostly, this audience engages with ESG and Sustainability information through intermediaries such as the ones below.

The intermediaries of choice depend upon the specific special interest of each audience member and generally include news media, social media personalities, advocacy group engagements, and community guidance. A CNN expose of brands benefiting from child labor on cocoa farms, an BBC investigative article on employment relations among car manufacturers, the brand likes and dislikes of a leading social media climate activist, the annual list of ‘best-of’ in publications such as Corporate Knights, the tested opinions of Consumer Reports and EWG, and so on, are all forms of intermediation helping stakeholder audiences access ESG-related information about companies they are interested in.

In all these forms of intermediation, what we see is a third-party identifying a particular element of your reporting and communications as being of interest and re-broadcasting it within a newly-contextualized format that fits their own narrative approach. In this sense, your ESG report is not the message, rather each and every individual component of your report has the potential to be its own message upon the consideration of third-party intermediaries.

What This Mean For You: If these are the types of audiences you are seeking to engage, then consider developing an ESG reporting and communication approach which:

  1. Internalizes the mindset that few people are actively looking for your information, but many people are interested itn it when it is intermediated and served to them.
  2. Targets specific special-interest organizations and media outlets you believe could serve as strategic intermediaries for your message. This may include actively connecting and communicating with desired intermediaries--Ever wondered why Corporate Knights doesn’t include you in their break-down of most sustainable companies, or why Fortune doesn’t even consider you in their ‘Best Workplaces’ index? Maybe it’s time to connect with them directly!
  3. Coordinates with an event-driven timeline. If the leading intermediaries you care about publish their ‘best-of’ or their consumer guides at year-end, then be sure all up-dated data and information is communicated long before the year-end. Likewise, if you want to be recognized as having a positive impact in Net-Zero, or Diversity, Equality, and Inclusion, consider having updated content and information to be published whenever these topics climb in popularity throughout the news cycles (i.e. likely numerous different times throughout a 12-month span).
  4. Focuses on issues which are considered material from this audience perspective, meaning frame your reports and communications more so about the specifics of how your company is contributing to specific impact focuses and less so about your company in general. The desire is not to learn about Coca-Cola but rather to learn about what Coca-Cola is doing about water security, for example.
  5. Stays focused on specific topics for specific audiences. Not all special-interest organizations or media outlets are concerned with everything that you are doing, rather most are interested in specific facts of what you are doing.
  6. Provides an engaging narrative supported by accessible data. As we like to say ‘data is the ink with which you can write a story’--the story is the end-goal, the data is the foundation.

Working With Different Audiences

As we can see, breaking audiences down into two broad categories leads to very different recommended approaches for ESG reporting and communication. From here, you can keep refining the types of audiences you want to engage and add even more strategic detail to your approach, but we won’t go any further in this newsletter as any additional detail is likely to be company-specific.

Below is a quick summary table of highlights to be considered when developing your approach to ESG reporting and communication.

A table comparing characteristics of stakeholder and shareholder audiences

One thing that is worth pointing out is that regardless of which audience category you want to focus on, neither are best served by the traditional approach of an annual comprehensive ESG report which so many companies are struggling with.

In Closing

Again, the traditional approach to ESG reporting, based on a comprehensive annual report, may not be the most efficient or effective approach for you. If you find ESG reporting to be challenging, to seemingly consume too much of your time, or simply to not be providing the return on investment you anticipated, then perhaps it is best to reconsider your approach to ESG reporting and communication. If you do take a moment to do so, please think through the following four questions--when we do, we always find new details and elements to help make companies’ ESG reporting and communications more efficient and effective.

  • Who are the different audiences you are attempting to connect with?
  • Why do you want to engage these audiences?
  • How do these audiences engage with information?
  • What message/information do you want these audiences to internalize?

What This Means for CSOs

The more you consider why you are preparing ESG reports and communications, and who you are preparing them for, the more likely you are to be able to develop a more strategic approach to these reports and communications. Even just considering a simple division of intended audiences as being either stakeholder- or shareholder-oriented can bring new details into your approach and make the whole reporting process much more effective and efficient. ESG reporting is often perceived as a substantial and inconvenient draw on your team’s time, but it doesn’t have to be that way…it could very well be a new strategic asset with the right approach.

Out in The World

A quick overview of recent news.

A Helpful Overview

With all the noise the last few months about ESG and the hidden ‘woke’ agenda to destroy the world, Bloomberg felt compelled to put out a brief overview of what ESG is and what it is not. If you’ve been reading our newsletters, then this piece likely won’t bring anything new to the table, but if you need a quick link to send to that one family member or friend that keeps (erroneously) harping on about the evils of ESG then this piece could help.

What This Means for CSOs

It's always helpful to keep an eye on what others think it is that you do. You work with ESG everyday...but what external audiences understand ESG to be is always shifting.

Does It Get Any More Woke Than KKR (/sarcasm)

KKR, the private equity behemoth, is launching two new ESG-oriented debt funds. The KKR Credit ESG Climate Opportunity Fund will invest in public debt of companies with high scores on KKR’s own ESG assessment process while the KKR Credit ESG Accelerator Fund will deploy sustainability-focused private debt strategies. These funds will join its ESG-dedicated Global Impact Fund which launched in 2019. KKR is the largest private equity fund and its continued growth into ESG should signal to just about everyone that ESG data is material to financial performance…and you would be hard pressed to find anyone dismissing KKR as being ‘woke’.

What This Means for CSOs

Capital markets are doubling-down on all things ESG. Your work is only going to get even more important...it may be time to make sure all the various units and teams in your organization properly understand what it is that you do.

Supply Chains Don't Lie

SpecRight is a leading supply chain data management platform and they have been conducting an annual State of Sustainability survey for the last few years. The report is quite interesting and they will be hosting a webinar later this month (we are planning on listening-in). Most interestingly, across 472 packaging and supply chain professionals, executive leadership is the principal driver of sustainability efforts (44%) followed by market expectations (42%)--both far ahead of regulations and standards (22%). This really puts the importance of ESG and Sustainability reporting and communication into focus. Executives can’t lead and markets can’t act without proper information…unfortunately, 87 percent of respondents also state that sustainability reporting is either challenging or extremely challenging!

What This Means for CSOs

ESG reporting and communication are critically important for both internal and external audiences. As we like to say, your ESG performance is not only about what you do but also about how well you communicate what you do.

In the end, reporting and communication are critically important components of ESG and Sustainability professionals' jobs...and perhaps more challenging than many may have anticipated. We are focused on this space and will have more to say in our next edition, in the meantime, please connect with us on Twitter and LinkedIn, or from our website to continue this discussion.

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