ESG Reporting – Disclosures and Standards
Here at Floww, we constantly reiterate that when seeking investment, it’s essential to have your financial reporting in order, to demonstrate your credibility as an entrepreneur. But as your business grows and you continue to seek larger sums of investment or perhaps even consider going public, there are other types of reporting which you may want to consider in order to increase your appeal to other, significant pools of capital.
In this guide, the Floww team – in partnership with the London Stock Exchange’s Sustainable Finance team – discuss an all-angled approach to ESG reporting, which can help support your business through its journey along the “funding continuum.”
What is ESG?
ESG stands for Environmental, Social and Governance. The three categories reflect unique areas of development for businesses which fall outside traditional departments, but resonate strongly with investors.
Beyond simply making a financial return, investors often desire to see their investment make a positive contribution to the environment and society at-large. In other words, businesses become more appealing to investors when they can demonstrate a consideration of pressing social and environmental issues. This line of sustainable investing has become widespread across the world as many wake up to the significant challenges present in modern society.
Here’s what you can do as a founder to show your awareness of the complexities in this new era of conscious capitalism.
As the prospect of climate crisis grows ever more realistic, thousands of companies have taken a proactive stance to become more environmentally-aware in their operations. To demonstrate your business isn’t actively harming the natural environment consider reporting the following:
- Energy Usage (over the last three years)
Here you can list your total usage of electricity, gas and fuel (measured in kilowatt hour (kWh)) for every year. A full breakdown can also include the data centres from where you reported these metrics (e.g. your energy providers).
- Carbon Emissions (over the last three years)
Be sure to state how many direct and indirect Greenhouse Gas (GHG) emissions your company releases on an annual basis. Direct emissions are those immediately from your company or controlled resources (e.g. factory emissions on production) while indirect emissions are those from purchased energy (e.g. using petrol in a company car).
It may not always apply, but if your business works with raw materials (e.g. oil and gas), consider reporting your recycling statistics and amounts of hazardous waste created as well.
Beyond environmental causes, there are likely a wide array of social causes relevant to your business that deserve time and consideration. There are also a number of universal social disclosures that your company can make to demonstrate a progressive, forward-thinking ethos. These may include:
- Social & Community Investment
Defined as the quantity of donations given to not-for-profit organisations as well as time spent volunteering with specific communities. Be sure to report exact monetary amounts and hours spent completing voluntary services.
- Female Directors
Consider reporting the percentage of female directors on your executive and non-executive boards to demonstrate you have a more diverse group “at the table” where important business decisions are being made.
- Ethnic Diversity
Further consider the exact percentages of ethnically diverse employees your business has. From intern to board member level, you can break down diversity metrics at every stage of your business.
Finally, it’s important to show you are able to run a successful business that has solid ethical practices. Illustrate to investors that you maintain a safe, legal and moral business that does the right things in the right ways. We’d suggest disclosing the following:
- Independent Directors
Declare the number and percentage of independent directors on the board of your company. Independent directors are those known to have no conflicts of interest within your business. Be sure to familiarise yourself with your corporate governance code to clarify the level of detail to report.
- Political Contributions
Clearly state the total monetary value of contributions made to political movements, organisations, candidates or charities.
- Corruption Fines
Reporting of fines or legal incidents should be clear and specific in order to demonstrate compliance with industry rule-makers.
How to Report and to Whom
Functional industry frameworks have been developed to ensure easily adoptable, yet rigorous and comparable ESG reporting standards can be achieved across companies in similar industries. When you are ready to get started with your ESG disclosures, consider structuring your reporting in line with standards set by the Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), and Climate Disclosure Project (CDP). Keeping in line with these standards will allow investors to easily compare your company against the competition; giving you the opportunity to excel on key ESG metrics.
To further improve the ease of ESG reporting, there are a number of independent providers your business can utilise to report concrete, transparent and meaningful ESG disclosures. These established providers can accurately calculate your level of ESG risk and showcase your commitments to investors through data-driven evidence. Consider investing in the services of one of these ESG rating providers to boost your credibility when developing funding relationships.
How to Get Started
From an early stage, it’s good practice to begin to establish ownership of ESG at the right level within the organisation – whether that be within the C-suite or at the board level – and embed it throughout the business.
We’d suggest that you begin your ESG journey by asking yourselves the following questions:
- What are the ESG issues most significant and applicable to our business?
- Does our business have written policies on the following?
- Health & Safety
- Environmental Management
- Labour Standards
- Human Rights (Modern Slavery & Human Trafficking)
- Equality & Diversity
- Community Investment/Volunteering
- Has our company externally reported our ESG commitments?
- Does our company report on Modern Slavery & Human Trafficking (MS&HT)?
- Has our company set science-based targets (SBT)?
In order to gain access to global funding partners, particularly as your business begins to reach a level of maturity, Floww and LSEG highly recommend comprehensive ESG reporting. Ensuring your business has a set of accurate and comprehensive ESG reports will be highly accretive in increasing your appeal to investors as it shows you’re serious about developing a serious global business which will not only be a tremendous financial success, but also a force for good!