You might have heard something or maybe a lot already about impact reporting, ESG, CSRD, GRI, GHG, and many more abbreviations and complex terminology around non-financial reporting and reducing the negative impact of a company. So what is all of this about?
In this first part of our four-part blog series, we are going to answer some of these questions for you!
Sustainability or impact reporting is a type of non-financial reporting where companies share information about their impact on different sustainability topics like human rights, CO2 emissions, and environmental costs. Non-financial reporting can be compared to annual financial reports, except that it focuses on everything except financial data. For example, sustainability data can include information about a company's air pollution emissions and use of renewable energy.
Due to increased demand from consumers, legislation, investors, and companies themselves, the number of companies reporting on their non-financial impact has grown rapidly. This has led to the development of standards, legislation, and methodologies for reporting on these aspects.
Issues like climate change, biodiversity loss, and resource scarcity don't just affect people, they also impact companies and their operations. It's therefore important for businesses to understand how these problems can create risks and affect costs. By recognizing these issues and their impact, companies can improve (future) decision-making, save money, and get more support from customers, employees, and other stakeholders. Taking action to address these challenges can lead to sustainable growth and positive outcomes for everyone involved.
The main difference between ESG and sustainability is that ESG focuses on specific criteria or factors related to Environmental, Social, and Governance aspects. In comparison, sustainability is a broader concept that encompasses how businesses operate in a way that meets economic, social, and environmental needs. ESG considers factors beyond just profit, emphasizing the importance of people, the planet, and profit (triple bottom line). It guides reporting on non-financial information and helps investors make decisions based on ESG performance. ESG topics include energy use, climate policies, and whistleblower policies. Sustainability, on the other hand, encompasses responsible and ethical business practices as a whole. To note: sustainability is often referred to as well when talking about environmental impact only.
In summary, ESG measures a company's performance in specific areas, while sustainability encompasses a wider range of practices and principles.