10 steps to best practice ESG reporting

If you’re new to ESG, setting up a management and reporting program can seem complicated.

I’ve broken the process down into 10 basic steps that, when followed, guide any organisation to establish a sustainability program and report progress to best practice standards.

You’ll notice that nine of the 10 steps are about how you set up and manage your program. That’s because the way you identify, measure, monitor, mitigate and maximise the topics you report on is the foundation of best practice reporting. If you set yourself up with a best practice management program, you’re on your way to a best practice report.


1. Determine your ‘why’

Get clear on the business need for establishing an ESG management and reporting program

This initial step is not a feel-good or marketing exercise; getting clear on the business need for an ESG management and reporting program will determine the frameworks you choose for your approach to materiality and reporting, and your priorities when it comes to setting up your program.

Here are some common business drivers and their associated frameworks.

  • To meet one, or many, regulatory requirement/s – the regulatory requirement will guide your approach to materiality and disclosure
  • To provide your investors with your ESG data – the International Sustainability Standards Board (ISSB) provides the leading framework for investor-focused data and disclosures
  • To provide your business partners with your ESG data – could be regulatory-related, requires a conversation with business partners
  • You want to expand into Europe – Europe has its own regulatory framework, the Corporate Sustainability Reporting Directive (CSRD)
  • You want a talent attraction and retention advantage – The Global Reporting Initiative (GRI) and Sustainable Development Goals offer great frameworks for disclosing community-focused information
  • You want to market your products as sustainable – There is increasing regulation around sustainability claims, consider the jurisdictions in which you operate.

You may have others.

Associated change management activities for this stage: High level change narrative, executive briefings, establishment of working groups.


2. List all your suppliers

And other stakeholder groups 

It can be helpful to bucket your suppliers into Tier 1, 2 and 3 categories. You should know all your tier 1 suppliers because they’re suppliers you directly do business with. Tiers 2 and 3 suppliers may not be as known. At this stage, just get down what you can, with a key focus on Tier 1 suppliers.

Associated change management activities for this stage: Stakeholder analysis.

3. Map your value chain

And then map your suppliers, stakeholders and their geographical locations to each component of the value chain

Best practice ESG reporting requires companies to disclose how they are managing ESG risks, opportunities and impacts within their company and along their entire value chain. You’ll need your value chain map when you undertake a topic materiality assessment (Step 4) and a risk assessment (Step 5).

For example, taking the topic of ‘water’; an ecommerce company with a predominantly remote work force might consider its use of water minimal, and therefore not material. However, it’s aware that one of its suppliers uses a lot of water to produce one of the company’s core products. The supplier does not have a water management strategy in place, creating both impacts and risks for the ecommerce company, all of which could be compounded depending on where the supplier is based.

Expert’s tip: It’s wise to develop a stakeholder engagement plan at this stage, because you will find it helpful to consult your stakeholders to complete your materiality assessment. You’ll also need to engage your suppliers ongoing once you’ve established your ESG program, because any significant ESG changes to their operations could trigger new materiality considerations for you.

Associated change management activities for this stage: Stakeholder matrix, communications and engagement plan

4. Define your material topics

By undertaking a materiality assessment

When considering whether or not an ESG topic is material, there are two approaches, or lenses, through which to consider the topic:

Financial materiality: Does the topic present us with any indirect or direct financial risks or opportunities? That is, could it impact our costs, revenues, liabilities, assets, or the cost of capital? This approach considers the ‘outside-in’ financial impacts the topic has or could have on the company. This information is of most interest to investors and providers of capital. ISSB provides the leading framework for financial materiality, including the topics to consider.

Impacts materiality: Do we impact society, the environment or the economy regarding this topic? This approach considers what impact the company has ‘inside-out’. GRI is the leading framework for ESG impacts reporting and it provides a great list of topics to consider. A best practice impacts materiality assessment requires stakeholder engagement.

A double materiality assessment considers both approaches to identify material topics.

You may or may not need to undertake a double materiality assessment depending on why you are developing an ESG program and for what purpose you are reporting, which is why Step 1: Determine your why is so important.

Associated change management activities for this stage: Stakeholder engagement, program communication (broadcast / awareness)

5. Prioritise your list of topics for management

Using risk assessment and cost / benefit analysis tools

Consider the likelihood, severity, and magnitude of risks and benefits.

Appropriate monitoring should be established for all risks and impacts. High risks should be prioritised for management. The company should also consider the most appropriate course of action for the opportunities it’s uncovered, depending on its business strategy and objectives.

Be prepared to report the thresholds you considered and the rationale you used for prioritisation.

Associated change activities for this stage: Stakeholder engagement, project updates

6. Analyse the gap

Compare your current state with your ideal future state, and measure the effort required to get you there.

This is where you’ll compare the ideal future states for managing each of your topics with how you’re currently managing those topics, and work out the effort required to bridge the gap.

To get a sense of what the ideal future state for each topic could and should be, revisit the requirements of the frameworks you decided on when you completed Step 1. Each framework typically offers information and metrics you should disclose. If in your current state you can’t disclose anything about your material topics, you have a significant gap.

At a minimum, all material topics should be embedded in the organisation’s risk management and governance frameworks.

It’s also important to bear in mind that having a particular policy about a topic isn’t enough for best practice management. You should be able to disclose KPIs, procedures, controls, etc for each topic.

Some examples of gaps:

  • You’ve identified emissions as a material topic but you aren’t even currently measuring your emissions, let alone monitoring or reducing them. This is a fairly big gap. Establishing your baseline emissions could be a key milestone for the first half of your first year of a management plan.
  • Supply chain management is a material topic. Your organisation is familiar with its Tier 1 suppliers, however not much is known is about Tier 2 and 3 suppliers. You do not have a formal mechanism in place for monitoring your suppliers’ performance across many ESG considerations. This is a big gap.
  • Your company has 200 employees. It has a diversity policy and it is proud to have two females on its 6-member board, and a female CEO. Due to the information the company holds on employees it can track diversity if it wants to, but this tracking isn’t in place. There aren’t any KPIs around diversity nor is diversity reflected in hiring practices. This is a medium gap.

 Associated change management activities for this stage: Stakeholder engagement, program communication (broadcast / awareness), high level change strategy


7. develop a roadmap

This is your plan to get you from current state to future state

Now that you’ve got a sense of your ESG priorities and the resources (time and money) required to reach your ideal future state, you’re ready to develop a roadmap, or a plan, to get you from current to future state.

If you’re developing your initial ESG management roadmap, it should at least outline in detail your first year of management, and consider key objectives for the second and third year.

Associated change activities for this stage: Change impact assessment, detailed change plan (communications, engagement and learning), stakeholder engagement, program communication (broadcast / awareness).

8. implement your plan

Use project management tools to roll out the activities to a schedule and budget.

Here are some example implementation activities for an organisation in its first year of reporting:

  • Establish baseline emissions measurements and develop a net zero strategy
  • Establish baseline waste measurements, and determine next steps based on findings
  • Train 100% of employees on corporate code of conduct
  • Undertake a cyber security assessment
  • Map Tier 2 and 3 suppliers

Associated change activities for this stage: Program and operational communications, training, stakeholder engagement, business readiness testing, handover activities.

9. report

Disclose your plan and your progress

Reporting is usually aligned to financial reporting timelines.

Revisit the associated frameworks you decided on for guidance on what and how to disclose.

Associated change activities for this stage: Stakeholder engagement, program communications


10. Continuous improvement – including regular supplier engagement

Revisit steps 1-8 at regular intervals as appropriate for your business.

You will have established measuring and monitoring of your topics as part of your ESG program. You’ll want to establish a cadence for reviewing your progress, recalling that oversight of each topic should have been integrated with your risk management and governance frameworks.

Be aware that changes in your operating model and environment, and those of your stakeholders and suppliers, could trigger new materiality considerations. This is why it’s important to establish a mechanism for ongoing supplier engagement.

Associated change activities for this stage: Ongoing program and operational communications, stakeholder engagement, training as needed.