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Unpacking the Sustainability and ESG Reporting Praxis

Unpacking the Sustainability and ESG Reporting Praxis


By Mike Eric Juru


The biggest benefit of sustainability reporting to organizations, amongst other things, is self-introspection, with the company asking itself whether what it is doing is worth it. Further benefits include increased transparency, cost optimization, credibility, accountability and improved corporate confidence and reputation. This is why the Security and Exchange (ZSE Listing Requirements) Rules – SI 134 extensively cover Sustainability Information and Disclosure. On the other hand, the triple bottom line of Environmental, Social, and Governance (ESG) practices has become the de facto language of capital markets due to its market value creation and preservation feats. This preamble sounds like jargon to realtors, but with a closer look at how global climate crises have become topical to corporate boards, governments, and international events, let’s swallow the hard fact that the built environment is known to contribute 40% of greenhouse gas emissions globally. The seemingly parallel worlds of Sustainability, ESG, and Real Estate have a point of convergence after all.

Interestingly, most business leaders and environmental experts use the terms sustainability and Environmental Social Governance (ESG) interchangeably. It somehow makes sense, considering that both share the same goal of improving a company’s business practices in order to boost profits and win the hearts of investors, customers, and regulators. That said, this article will shed light on the distinction between the two terms.  It will also enlighten you on the importance and impact of sustainability and ESG on property values and organizational profitability.

As unfortunate as it is limited in scope, sustainability has become synonymous with “going green” or “reducing carbon footprint”. Resultantly, most people align sustainability with interventions that reduce energy consumption, track water usage, and manage waste.

There is nothing wrong with this alternate view considering the importance of the above interventions to organizational success. Regrettably, that’s a narrow perspective of the word sustainability. In reality, sustainability is an umbrella term that encompasses all of a company’s efforts to reduce its impact on the world around it. For example, sustainability can also mean creating good jobs or promoting gender equality — in addition to helping the environment.

Evidently, companies have struggled to embrace such a broad concept, and for that reason, sustainability has never been truly integrated into the majority of organizations. Those with a better idea of what sustainability is have struggled to come up with mechanisms to measure and report on their performance.

To further expound on sustainability, in business terms, sustainability is a balancing act of meeting the environmental, social, and economic needs relevant to the entity in question. Expressly, there are three pillars that denote corporate sustainability.

  1. The environmental pillar: Environmental sustainability is about meeting the needs of the environment. This means leaving natural ecosystems unharmed, supporting biodiversity, maintaining natural environments and resources, and restoring natural climatic cycles.
  2. The social pillar: Social sustainability is about meeting the needs of and supporting communities, employees, consumers, and other stakeholders. This incorporates everything from philanthropic charitable donations to establishing a healthy work-life balance for the employee.
  3. The economic pillar: Economic sustainability is about meeting the needs of the business itself. If a business is not profitable, it cannot operate.

By considering these three pillars together, the aim of corporate sustainability is to maintain an enterprise in the long run without depleting the environment or adopting socially harmful practices. Ironically, real estate development value is derived from the environment.

Reverting to the gist of the article, a sustainability report or “non-finacial reporting” is a periodic report published by companies that want to share their corporate social and environmental goals and responsibilities with a broad range of stakeholders as well as its progress towards achieving them. The report synthesizes and publicizes the information an organization decides to communicate regarding its commitments and actions in social and environmental areas.

By doing so, an organization will let stakeholders – from customers to employees and anyone else interested in the actions of the organization – know about the brand’s sustainable development strategy.

Environmental Social Governance (ESG)

ESG gained traction following the publication of the Global Compact 2005 report Who Cares Wins. The report demonstrated that ESG investments make good business sense. And since the report’s publication, such investments have grown exponentially.

By definition, ESG is ‘The criteria that establish the framework for assessing the impact of the sustainability and ethical practices of a company on its financial performance and operations. ESG comprises three pillars: environmental, social, and governance, all of which collectively contribute to effective performance, with positive benefits for the wider markets, society, and the world as a whole.’ (IVS 2020 Agenda Consultation). ‘Although ESG principally refers to companies and investors, ESG-related factors are also used to describe the characteristics and, where relevant, operation of individual assets.

The ESG framework is used by investors to evaluate an organization’s performance against specific criteria. Such criteria are used to measure an entity’s risk exposure with the aim of improving investment decisions. Thus, it is safe to say ESG is a risk management tool.

Each category within ESG overlaps with the 3 pillars of corporate sustainability, as we explain:

  1. Environment: This includes corporate climate policies, energy use, waste management, pollution, natural resource conservation, and the treatment of animals. The environment category addresses the environmental risks a company might face.
  2. Social: Social criteria looks at a company’s relationships with stakeholders, which include employees and their well-being, supply chains, health and safety, consumers, and investors. This considers philanthropic donations and working conditions for employees.
  3. Governance: Governance refers to how a company is managed and how well the executive management and board of directors attend to the interests of the company’s various stakeholders – employees, suppliers, shareholders, and customers. This includes transparent and full financial reports, plus ethical and legal management.

Evidently, there’s an overlap between the three sustainability pillars and the three categories of ESG. And this is how the two terms are similar.

ESG and sustainability are both strategic considerations for businesses, executive teams, and investors. They both share the same goal of improving a company’s business practices to boost profits and win indulgence from investors, customers, and regulators – while safeguarding the environment and supporting communities.

By accounting for these similarities, it’s easy to see how the two terms can become confused.

ESG reporting

ESG reporting is the disclosure of data covering business operations related to the environmental, social, and governance aspects of a business using specific criteria, with the aim of exposing an entity’s risk profile to investors.

By disclosing this information in a report, a company’s progress related to these three fields can be examined against benchmarks and targets. Once more, an ESG report is designed to provide full transparency over an organization’s environmental, social, and governance impact across a multitude of stakeholders, including investors, employees, and customers.

ESG reporting is a form of risk management framework addressing a business’ compliance, sustainability, and social footprint. The ESG risks are stated to cause material, financial and reputational harm to a business. Failing to report and manage ESG-related issues is a risky business that could resort to an ESG-related incident or controversy, including delisting and revocation of operating licenses, to mention a few.

Although many standards used for ESG reporting can also be used to produce a sustainability report, the purpose and target audience of the reports differ. It is important to note that a sustainability report can be vague, whereas an ESG report is strictly structured by environmental, social, and governance criteria. To invest effectively and responsibly, investors need ESG reports as these reports allow them to review relevant, reliable, accurate, comparable, and timely data.

In short – “ESG looks at how the world impacts a company or investment, whereas sustainability focuses on how a company (or investment) impacts the world.” The main difference between ESG and sustainability on the stakeholders that each speaks to. On one hand, ESG is a concept used by investors, giving them a framework to assess a company’s performance and risk. As an investment framework, standards have been set by investors and ESG reporting organizations.

On the other hand, sustainability has a broader stakeholder focus, accounting for employees, customers, and shareholders. In contrast to ESG, sustainability standards incorporate scientific input.

ESG seeks the identification and ranking of undertakings that show desirable characteristics, which are broader than what’s considered in sustainability – these characteristics extend to directors’ pay, diversity of stakeholders, treatment of workers, community engagement, and health and safety issues, to mention a few. To an astute leader with a hunger for success, the distinction between ESG and sustainability is subtle but important.

To give more context to this analysis, ESG draws attention to how environmental, social and governance issues affect the value of assets while sustainability looks at how the assets impact on the people, environment and business. Simply put, organisational value is affected by an ESG analysis whereas sustainability gives direction on how to reduce this impact on various stakeholders.

The above praxis presents a compelling challenge to corporate entities and regulators to embrace the tenets of ESG and the values of sustainability, in their synchronicity, and in their parallelism for maximum gain.

Article compiled by Mike E Juru, Chief Executive Officer for Integrated Properties, he can be contacted on 0773805000 or [email protected]

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