In recent years, the trend of environmental, social, and governance (ESG) reporting has gained momentum and has become an integral part of corporate tax and accounting departments. According to a comprehensive analysis of corporate ESG reporting, 95% of large companies reported on ESG during the 2021 disclosure period, marking an increase from 92% in 2020 and 91% in 2019. Additionally, a study found that 99% of S&P 500 companies are reporting on ESG-related information. The rate of reporting varies across different jurisdictions, with Western countries and many countries in the Asia-Pacific region showing near-universal reporting rates among large companies. However, emerging markets such as South Africa, Brazil, Turkey, Mexico, and Argentina are at various stages in their ESG-reporting journeys.
One of the main challenges in the adoption of ESG reporting is the lack of uniformity in determining what information a company will report and the process to ensure the validity of the reported information. To address this challenge, a substantial majority of the surveyed companies reported using at least one standard or framework, with the Global Reporting Initiative, Task Force on Climate-related Financial Disclosures, and Sustainability Accounting Standards Board being the most referenced.
To establish a robust ESG reporting program, companies need to follow five main steps:
1. Build a reporting team with the right mix of expertise and resources. This will ensure buy-in from senior-level leadership and prevent assigning ESG reporting solely to the marketing or communications team. It may also involve bringing in outside expertise if necessary.
2. Evaluate common practices among peer companies. This can be achieved by reviewing peer companies’ Securities and Exchange Commission filings and leveraging the agency’s review process. Understanding the reporting expectations within a specific sector and market is valuable due to the lack of universal ESG reporting standards.
3. Build a reporting roadmap and ensure all data is backed up by evidence. Companies can achieve this by identifying areas of focus, defining the purpose of disclosure, and determining how the reported information can be utilized across the company to address requests for information or communicate the company’s position on a new or lasting trend.
4. Review the work and secure third-party validation. It is essential to review and approve ESG reporting internally, and to consider validation by a third-party expert. This practice is becoming increasingly important, even if not yet required by jurisdiction.
5. Share ESG reporting details with stakeholders and staff. Relevance verification and submission to regulatory agencies or standard-setters is essential, as well as ensuring accessibility across different channels and training senior leadership on key highlights from ESG reporting.
ESG reporting is expected to continue playing a critical role in enhancing corporate transparency. As the regulatory landscape evolves around this issue, companies need to prepare to meet a higher standard for their ESG reporting in order to succeed in the long run. For further information on this topic, refer to the Thomson Reuters Tax & Accounting Special Report, Environmental, Social, and Governance — ESG: The Basics [here](https://www.thomsonreuters.com/content/dam/openweb/documents/pdf/tax-accounting/tr-institute/esg-the-basics.pdf).
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