How ESG Reporting Can Give Companies a Competitive Edge
Should shareholders always come first? In August 2019, Business Roundtable CEOs challenged that long-held view, arguing that companies must demonstrate a commitment to all stakeholders – customers, employees, suppliers, and communities. The best way to do this for many companies? ESG or sustainability reporting. In this Solving for B° episode, our experts breakdown sustainability reporting and how it can impact your brand. Bo, Leslie, and Leigh Anne cover the following:
- What is an ESG report?
- What are the standards for ESG reporting?
- Why the recent increase in reporting?
- What are the benefits of ESG reporting for a brand?
- Is ESG reporting right for every company?
- Will ESG reporting be legislated in the future?
- What are the pros and cons of digital vs. print reporting?
Read the Transcript
*This transcript has been edited and formatted for readability.
Chris Wilks: Welcome into the Solving for B° podcast. In today's episode, we're going to discuss ESG reporting. So what is an ESG report and why are they important to your brand. And to help me answer these questions I'm joined by President and CEO, Bo Bothe; Brand Strategist, Leslie Rainwater; and making her podcast debut, Web Strategist and guru of digital ESG reports, Leigh Anne Bishop. Now let's set the baseline for the episode and start off by defining what exactly is an ESG report.
What is an ESG report?
Leigh Anne Bishop: Well, an ESG report is not an annual report. An ESG report is reporting on your environmental data, your social data, your economic and governance data. So best practices, supply chain management, that sort of thing.
An ESG report is a little bit more malleable or flexible. You can report on what you deem worthy of reporting on. It's not like a financial report where you have strict guidelines that you have to adhere to for government regulations, especially if you're a publicly-traded company.
So, ESG is a little bit more something that you can frame or something that you can make your own, and it's really about what data you have and what you're doing. It's all about your business, right?
What are the standards for ESG reporting?
Chris: Yeah, and one of the things you mentioned is annual reports have these standards. You have to share these things legally, you're required to. There are no legal requirements for these ESG reports, but we did uncover that there is the SASB which was founded in 2011 that did put some sort of parameters around what should be covered in ESG reports. Leslie, I believe you know a little bit more about that, so can you tell us about the SASB?
Leslie Rainwater: It's Sustainability Accounting Standards Board, and they did form it in 2011 and they put about 77 different measurements together, and that was just to give a guideline. Because right now when people are doing reporting, they set their own measurements so they're not as specific across the board. They figure out what they're going to talk about and then they give the data to match that versus having a set metric they have to achieve.
Then interestingly NASDAQ, because it is so popular, what they've done – they've actually put out a guide. They've been working with many, many companies to where they've gotten it down to 30 measurements to try and help companies. Because they see that this is becoming a trend and more and more people are going to do it and they don't have a good feel for how do I do it, so these are best practices documents. So you've got a couple of different bodies that are doing that right now.
Chris: And you mentioned that it feels like there are more and more companies with more interest in an ESG report, which at one point were called responsibility reporting and sustainability reporting. And it seems like ESG is the current iteration of nomenclature, but it's kind of the same thing, or are there differences?
Leigh Anne: No, I think it's the same thing, I think it's just evolved over time and it seems like that those three areas are where everyone's focused, you know? In other words, it's just a natural evolution and it's a little bit clearer. But in social you could have things about your workforce. How many female employees do you have? That could be under social. You could also have what we're doing out in the community. That might be under social. So it just depends. Whatever's best for your company, I think.
Why the recent increase in ESG reporting?
Chris: So why do we think that we are seeing a spike in interest in providing these ESG reports?
Bo Bothe: If you're following the current political environment, that's a big teller in why these are becoming more and more important. I think the worker, the employee, the shareholder, the customer and consumer are becoming more and more socially aware and they want to work with brands that align with the things they believe in. Right or wrong, good or bad, all those things, it's easier to become more aware about the organizations you work with today. More and more is shared, more and more information's out there, and so some sort of standard, which these will all eventually standardize, will come about to make sure that companies are acting responsibly as well as performing in a responsible manner for their shareholders.
Leslie: And interestingly, when you come to shareholders, when people are starting to assess risk, when they invest in a company, when you start looking at these reports, it gives them how they're proactively solving problems. If I'm an oil company, for oil spills and things like that, what am I doing to anticipate those problems?
So when they're looking far out at their investment risk, they're looking at people who are responsible and looking for the future and they're not going to run into some of these major events that would cause problems going forward.
I would also say that social media and kind of the public movements that you see out there, whether it's the Me Too movement or it's a backlash on an oil company that's had a break in their pipeline or something like that, I think all of this type of sustainability reporting, ESG reporting, is critical to show that in good faith, we're trying to do the right thing here. And it gives you a little bit of credibility so that, God forbid, something were to happen down the road you can say, "Look, we're trying our best. Obviously we've got an issue here. We're going to correct this issue, but we're making every effort to measure and fully evolve into the 21st century along with the rest of the world." Does that make sense?
Bo: We just had a conversation about the internet of things and data security. I think part of being socially responsible and responsible for your customers is data. And so, where do you report that if you're a public company? Back to Leslie talking about being able to report on things that could impact your operations and then monetarily impact your return to shareholders if you have a data breach. How does that affect trust? How does that affect brand value? How does that affect somebody buying your product or trusting you enough with their data information?
Those are all things that I think companies are going to need to report on in a more orderly manner beyond just the footnote in the financials because the government sued them for some sort of mistake in their data housing.
And so I think those are all things that there is a trend to report these things, but at the end of the day how does it impact the bottom line and how does it impact the perception of the brand which will then impact the bottom line? And I think that's what you're starting to see is people, a board member asking a question, a shareholder holding an organization accountable to a certain social standard, and then those things becoming movements that are then becoming big enough to where all companies need to report how they're approaching it.
I do think you're going to see, hopefully you'll see some level heads, because it can't all happen today and it has been happening over time. People have become more responsible for the environment. These companies that are taking a black eye on a lot of these things are working very hard to make it better, but it's not going to happen tomorrow. But as long as they're reporting it, recording it, I think Leigh Anne said if it's written down we can do something about it. As long as they're reporting and recording it, there's something that they can work toward, and I think a shareholder and most well meaning people in the universe are going to cut them some slack while they're working toward it. And if every year the reporting on that moving forward or not, but they're working on it, that's going to help the brands as they move forward.
What are the benefits of ESG reporting for a brand?
Chris: So we were kind of touching on it here, but I do, the next thing I want to talk about is what are the benefits of ESG reporting for a brand? So like we talked about getting a little bit of mileage and building up maybe that goodwill in the case that something does go wrong. But one of the things that I thought was interesting when we were in preparation for the episode was that a lot of times these ESG reports give brands the opportunity to think about these things in a framework that maybe they hadn't before.
So can we talk a little bit about that as a benefit, and also are there other benefits that may be beyond the surface level?
Leslie: Well, when you talk about how it impacts a brand, we just recently did a sustainability report for a major drilling company, and one of the things that we learned was the fact that they are a performance brand and it took them a while to get that defined. And then as they begin to get into their sustainability, they realized they were very intentional about that and they were able to report on it from a performance standpoint. Everything went to that, but it backed into showing that we are a thoughtful, intentional brand and company. We don't just say we are a performance brand, but it helps round out the story of what their brand is.
Leigh Anne: Yeah, and we had one company that really kind of discovered or uncovered their brand when they were working on their ESG report because it really made them think, "Wait a minute, what story do we tell? What is our "theme," if you will, to this and what do we want to talk about in terms of how it relates to our mission, vision, and values and our positioning statement? And is our positioning statement that solid? Maybe we need to go back and look at that. Maybe we've evolved over time and that needs to evolve with it.
So sometimes it happens either way. The brand influences this report or this report. Just like anything else, any other project that we've done in the past, whether we're doing a website or doing a video or what have you, it makes them stop and think. And we're always going, "Okay, why is this important? Let's ask why this means something, or the purpose of this page is this."
And so sometimes those are really hard questions and you have to stop and pause, and it may take a while to figure it out and have internal meetings and work with us to uncover those things. But ultimately, you get stronger.
Bo: I think there's always the penalize phase of any new movement, right? You bad. This good. You in trouble. But if you really look at it and if an organization is really looking at this the right way, which I think the ones we've engaged with are, and that's a maturity, I don't think they would have looked at it the right way 10 years ago, say. If you're hiring a more diverse workforce, not because you want to show equality, but because it makes it a richer environment to work in, if your products are commoditizing faster and the thing you do isn't, we talked a little bit about this in another podcast, too, the thing you do isn't the value part, but the how you do it is more valuable.
Understanding who I'm putting on a rig, how those people work together, the things we're automating, how they're taken care of, they respect each other. They respect themselves. The way they behave. They're more efficient. We're able to track that and see it. The people in the neighborhood love them because they're good in the communities that they work in. When all that stuff starts to work in concert, separate of how everybody feels about it and separate in terms of equality or any of that, the business is just better and the business should operate better. People are better trained, they're better equipped. They're not getting as much friction from the things around them. The regulatory body isn't beating them down because they operate with respect to the things that they need to be operating with respect to.
Leigh Anne: Yeah. Maybe if you're more sustainable, you've got lower capital, you know?
Bo: Yeah, you can work more efficiently.
Leigh Anne: Yeah, and I think ultimately it makes a better company, a better human. You know Chris, I have a 14-year-old child and so I always contemplate things in the mindset of a teenager, right? And I'm trying to establish a well-rounded teenager so I want her to have balance. So whether academic efforts or extracurricular efforts or social efforts, I want her to volunteer and be part of the community. I want her to experience some form of spiritualism, going to church, whatever. So I want to create that balance so that she can draw on those resources later in life. Right?
And so I think the same is true for a company. When you're trying to raise a better company or raise a better kid, you want to have that balance. So you want to be cognizant of what you're doing and the time that you allocate for that. So in this instance, maybe it's not time, maybe it's effort, but I think that if you look at all of these things and you measure all of these things, you can ultimately output a better company, a better workforce, a happier workforce, and a more cost-effective company.
Chris: And I think one of the things you touched on, you said the word measurement, I think about that which is measured gets done, right?
Leigh Anne: Right. I think that's Pearson's Law, isn't it?
Chris: These companies, these brands that are undertaking ESG reports, I guess the intrinsic benefit of it is that you're allowed to then measure yourself against these values that you put forth. So if you say that I want to be a more diverse company or I want to contribute less emissions or whatever it may be, if you see year after year you're staying the exact same, then not only is the public able to hold your feet to the fire, you can then see that and hold your own feet to the fire.
Leslie: Yeah, because you know when we were working on the sustainability report, one of the things that they were looking at was diversity in the workforce, and after they started rounding up the information, they were shocked. And they had to report on it, but the gender equality was abysmal. So they looked at that and they had to go ahead and say, "We got this information, we are going to report on it." But then the question became very quickly, "How are we going to change this and how are we intentionally going to make sure that next year's report or the report after that is going to be better?"
So it became a standard in a conversation, an elevated conversation, and intentional, but they hadn't really been paying attention to it before until they saw the big picture. So they put a baseline, and then that gives them help to grow.
Chris: In that case, it is literally a tool to help you make sure you stay true to your brand, right?
Leigh Anne: Yeah.
Chris: Again, it's holding your feet to the fire of your brand. If your brand promise is diversity or equality or whatever it may be, and these numbers show up and it's telling a different story, then you're not hitting the mark with your brand, right?
Bo: Right. The other side of this, the converse in this, if you don't believe this is important to your brand or if it isn't. I mean, in some cases this widget needs to be made by robots and I need five people to operate my factory floor. Well, going on and on about all the social good you do and all that kind of stuff might be the wrong approach because diversity might be five different people doing one job pressing a button.
I think companies are going to have to be really honest with themselves. And to your point, as they're being honest with themselves, if they see that this matters to the success of their organization then they need to put a number together and achieve it. But they're also going to have to be pretty bold about what doesn't matter.
Because if you're talking about a drilling company, being way too effusive about how environmentally conscious you are might be contrary to your brand because you are using the earth's resources to the benefit of humans and for monetary benefit. But if you do it safely and reliably, you can't really say that you're saving the environment by doing what you're doing, but you can say that you are doing it as safely and as responsibly as you can. You have to balance the story so that it is true to your brand and to what you do.
I think that that is going to be a challenge. I think for a lot of when we as marketers and branders, somebody is always going to come in and say, "We're all about equality," and then if there's not a path to that and when I say that it's not that you don't care personally about equality, but if it's not something that your business can live up to because of the type of business it is, you have to be real about that and honest about it. And that's going to be a challenge as some of these things standardize.
Leigh Anne: Yeah. I think you don't want to have a box to check the box. You want to have the box to be authentic because you believe in it, you know? And this is a value, this is a principle, and I do want to be able to lay my head down at night and sleep well. You know? As a company, as a president, as an employee of that company.
Is ESG reporting for every company?
Chris: Are there any scenarios where we would dissuade someone or a company from doing an ESG report if they came to us and said, "Hey, we think it's right for us. Let's go do it." Would we say, "Nope."
Leigh Anne: There's a couple of things. I mean, first of all, the obvious is you really have to believe in it and you need to have buy-in. You need to have support within your organization to really want to do that.
Secondly, you need to be able to measure things. If you don't have any data to start, then spend a year gathering data. Actually think about it. Think what you want to report on. Go out and get it. Come back and say, "Okay, I'm ready." We can certainly have that conversation at any point in time, but do your homework first to know kind of, "Well these are our principles and we want to exhibit these principles through these measured pieces." I think you can start there, but ultimately, if the leadership doesn't believe in it or thinks that, "Oh, I want to just check that box so I can say I checked that box," that's not the right thing to do.
Leslie: Well, sustainability reports become non-sustainable themselves. I've got one, but then if I'm not committed to it, I come back next year and I'm like, "What am I going to say now?"
Chris: So, obviously there are situations where someone comes to us and they say we want to do this. So you said the first step is to think about what you want to report on. Part of that is also looking at your brand values, right? I mean, how is that first step kind of carried out?
Bo: I think there are probably enough out there that a standard template applies. You know, ESG right? Then organizations have to define how deep they want to go across those different things.
Leigh Anne: Yeah, there's a bunch of existing organizations out there that already have guidelines and principles. I mean the EU has a law of so many different things that you need.
Bo: The UN.
Leigh Anne: Yeah. The UN has the 2030 goals. There's the Global Reporting Initiative. The GRI data, they have an index I think that you can follow and there are a lot of different clients that use a lot of different things.
Bo: Yeah. The good thing now, I think the benefit now, not for those that are afraid of working with a blank canvas is that you can pretty much write it the way you want to write it and structure it the way you want to structure it and you pretty much can report what'd you want to report on. But to Leslie and Leigh Anne's point, once you start reporting on it you either need to, at some point, pull out and say we don't have enough data or we're not committed to this, or you keep doing it.
I think organizations like some of the ones we've worked with have to be very careful because you can't throw the kitchen sink at it at the beginning either because you don't have enough information. And an organization like the UN that gives a 2020 goal, that's around the corner. And if you look at those goals while they're BHAGs, they're not sustainable. You know? And I think people are just getting there at this point, right? So they're just getting their minds around how long it's really going to take to fix some of these organizations or move them in the right way in some of these areas, and people are just understanding how it impacts the bottom line.
Because I do think some of the nods in annual reports and in corporate responsibility sections on websites that people have put out there, I think a lot of companies have been just kind of throwing stuff out there. "Hey look at the coolest stuff we do." They're starting to understand the benefit not just to their company, but to the communities they work in.
And then to the bottom line with people being more loyal and communities being more willing to work with them and more educated people in the communities they are working with so that they can have a better workforce. I mean, they're starting to understand how that's tied together and I think that these will become richer documents and pieces as they start to understand how it really impacts their performance, which I think is kind of an awakening that's happening right now.
Will ESG reporting be legislated in the future?
Chris: Do you think that in the next let's say 10 years, ESG reports will be required? Or at the very least, expected from the general public? I mean, is they're going to eventually be legislation?
Leigh Anne: In the EU, I think that if you are a public company and you have a certain revenue or you're in the top 500 or however many employees you're required to report on it. I think eventually that will come to the U.S. There are some things you might be surprised that you're already reporting for government regulations that you don't even know that you could leverage for a sustainability and ESG report. Whether it's workforce or safety incidents or wastewater management that you need to report on for the EPA or whatever, I think that there are a lot of things out there that you could already harvest what you have. You may have some low hanging fruit that you don't know that you have that you could use for an ESG report.
Leslie: I think it will become more standard practice and it's just going to be a given, that as an investor when I'm looking, I go look for that as well as the financial report. When websites first came out, companies were like, "Am I going to really do a website? I mean, what's the need? Is this is going to last or whatever?" And then as more and more people got it, then it became standard, right? I mean that's a little more pervasive than sustainability reports, but it's the same thing that once a trend happens and people realize this is a valuable thing to rate a company by and to bring forth, people are just going to start expecting that.
Chris: So is it fair to say that ESG reports are valuable to every brand?
Leigh Anne: Oh, I don't like absolutes.
Bo: I think that an organization paying attention strategically, not just because they like it or they feel like it's the right thing to do or somebody is angry about it, but an organization paying attention strategically to the things they're doing in the environment, the things they're doing socially, and the things that they're doing from a governance standpoint, and again i.e., data security, I think it is imperative. Businesses have gotten so complex when you talk about those different things, our world's changing, it's gotten smaller, we are more global. All societies are more global, there's more complexities, and so if you are a smart executive team, that you're thinking about this, that you're reporting on it, that you're measuring it, is probably the next best step, that you're reporting on it needs to be very intentional.
Do all organizations need to do it? I would say the answer is probably no. That said, coming from a more conservative person, regulation can sometimes drive change that needs to happen. I think that when you talk about the environment, when you talk about culture, when you talk about governance, all of those things need to have a steady hand on them. And as an organization, yeah, I should probably have to report on what we're trying to do, but the standards are so different for so many different companies that it would make it really hard to mandate it.
But again, if your organization doesn't rely on it or doesn't believe in it, it's going to be really hard for you to stand up to that, which would then shine the light on if you're not doing the right things.
What are the pros and cons of digital vs. print reporting?
Chris: So Leigh Anne, real quick, what are the differences between a digital version of a report, or should there be a difference between the digital version of report or maybe like a print version? I mean, is there any considerations whenever we're talking about different sustainability reports?
Leigh Anne: It would depend on your target audience and your personas and who you're aiming for. Typically what we've seen is that we'll have the full report digitally online, and then we'll also have sort of a high-level overview. So maybe if you've got 50, 60 working HTML pages, you may have a 12-page print brochure that gives you some high-level overview of each section.
But that said, there are others where I've seen them make a full report and print it and they have it at every shareholder meeting available. So, it just depends. I think it's who do you want to communicate this to? Certainly you need to have an online, and nowadays I mean, we can make data dynamic so if you have a change in data and you need to go and update it, you don't have to open up an Illustrator file, you can just update it on your Google spreadsheet and it magically populates on your site. So, that's a nice thing.
Bo: And I think speaks to how organic this information can be. Maybe the printed piece is the summary that this is where we were at this point, but to Leigh Anne's point, day-to-day, month-to-month, year-to-year, quarter-to-quarter, that data can update real-time. And so, why not have that type of reporting if your organization can sustain it to where people can see the progress? They can see a chart over time. They can see change in real-time. That, I would assume, would affect brand perception. Wow, they are moving forward on this real time, rather than waiting a year or two to get the data. So, it just depends.
Leigh Anne: It's easier to stay current, you know? I keep going back to social media, but I've seen cases where there're 5,000 employees in a company, but they have 55,000 Instagram followers, and a lot of their Instagram feed is filled with sustainability, with ESG type material. It's like our folks in Galveston did this, our folks in Phoenix did this, and that's great to see. And so you've got that content and it's real authentic content. Why not leverage it? Why not document it and find a home for it?
Chris: So not only is it good for the greater good, but it's also good for business, right? Well guys, I think we about covered it. I want to thank you guys for taking the time out today. This was really informative, really helpful. Everybody who's tuned in, I hope you guys found it to be the same. So, thanks guys, and we'll catch you next time.