Benchmarking the complexity of ESG reporting

From the November 2024 edition of Supply Chain Management Review.

November 2024

Another year, and another successful NextGen Supply Chain Conference. I’m just back from our annual NextGen conference in Chicago—this was my second conference since joining Peerless Media in 2023—and it was an…

Browse this issue archive.

Access your online digital edition.

Download a PDF file of the November 2024 issue.

Sustainability reporting, also known as environmental, social, and governance (ESG) reporting, covers a broad range of topics and involves complex data, much of which is relevant to supply chain. This reporting is essential to providing updates to stakeholders of all kinds, including investors, regulatory agencies, customers, and employees. It provides an important platform for companies to show their commitment to ethical performance.

APQC recently conducted a survey of 1,700 professionals to better understand the size and scope of companies’ ESG reporting. Respondents provided information on the challenges companies face in ESG reporting, the number of metrics tracked at their organizations, and the types of reporting standards and frameworks companies use. Although organizations do not always have control over what they must report and the framework they use, there are steps they can take to streamline and improve their reporting efforts.

Related infographic

 

Challenges to ESG reporting 

Environmental, social, and governance (ESG) reporting is a complex undertaking for many organizations. Although companies have minimal control over the data they must report, there are steps they can take to streamline the gathering of data. The infographic below shows the challenges organizations face in ESG reporting. It also displays the ESG topics organizations report on the most.

Click to view the infographic in full

 

Challenges

To produce ESG reports, organizations must pull data from various sources across the enterprise. Organizations therefore face many challenges with the collection and reporting of ESG data. As shown in Figure 1, the greatest challenges involve storing and obtaining data.

Due to a lack of integration among the systems used by various departments, for 32% of organizations, the consolidation or transfer of data is a manual process that requires time, effort and resources. In a related result, about one-quarter of organizations find it hard to obtain energy and emissions data from both inside and outside of the company. Overall, these challenges indicate that many organizations struggle with the lack of resources and processes to track down and consolidate data for ESG reports.

Report contents

ESG reporting must address questions from a broad range of stakeholders, including regulatory agencies. The scope of topics included in reporting is therefore extremely broad. However, there are fairly standard ESG topics that most companies include in their reporting.

Environmental topics

Unsurprisingly, greenhouse gas emissions are the top climate-related topic organizations include in their ESG reporting (Figure 2). This is followed by energy consumption levels and the organization’s energy sources, including renewable energy. Interestingly, although nearly three-quarters of organizations report a target year for reaching net zero, only 50% report a roadmap for reaching that goal.

 

Social topics

For social topics included in ESG reporting, most organizations include issues that affect the broader employee population. Health and safety is the topic included most often followed by the race/ethnicity representation and gender representation of the company’s overall workforce (Figure 3).

Fewer organizations report specifics about their leadership. Sixty-three percent report their leadership’s gender representation. Only 34% report minority representation among their leadership. And fewer even (26%) report on compensation ratios.

 

Governance topics

With regard to governance, the largest percentage of organizations report on data security (80%) in their ESG reporting (Figure 4). The second largest group reports anti-corruption data (74%). Interestingly, the governance structure of the organization itself is reported by only 63% of companies responding to APQC’s survey.

Responsible sourcing and supplier base are reported by less than half of organizations. This result is surprising given that there continues to be public pressure on companies to carefully consider the suppliers they use and the origins of the products they buy. Yet these results indicate that many organizations’ stakeholders are not requesting this information.

Caption

Metrics reported

With organizations including such a wide variety of topics in their ESG reporting, it follows that their reports include a large number of metrics. At the median, organizations report on 50 environmental metrics at least annually. Further, at the median they report on 60 different social metrics at least annually. Stakeholders are therefore combing through 110 metrics at the median, and that is without factoring in governance-related metrics.

These numbers represent a large amount of time and effort spent on data reporting, especially considering that many organizations struggle with obtaining and combining data for reports. The sheer number of metrics included in ESG reporting begs the question of whether companies are using data reporting in the most effective way. It is worth organizations asking whether their full list of metrics indeed meets the needs of all their stakeholders, or if there are metrics included that either do not fully provide information or are not necessary to report.

Reporting standards and frameworks

In addition to the wide variety of topics and metrics covered in ESG reporting, organizations must be familiar with different reporting standards and frameworks. As part of its research, APQC asked respondents to note the reporting standards their organizations use today, as well as those they anticipate using by the end of 2025. As shown in Figure 5, using multiple standards and frameworks within ESG reporting is a situation that will likely not end any time soon.

Caption

Given ESG reporting’s heavy emphasis on environmental topics, it is not surprising that the standard currently used most often is the GHG (greenhouse gas) Protocol Corporate Accounting and Reporting Standard. This is also the standard that the largest group of organizations plan to report against by the end of 2025.

Many frameworks are consolidating or becoming aligned to simplify standards for reporting. Although there most likely will never be just one framework. Organizations should stay informed about updates to reporting standards. Further simplification will help streamline the tracking and reporting process for organizations.

Working with complexity

ESG reporting is complex and must meet the needs of a broad set of stakeholders. For many supply chain professionals, reporting involves tracking data on many topics and for a large number of metrics. Although there are some aspects of reporting that an organization cannot change due to regulatory guidelines or defined frameworks, it can take steps to make reporting easier.

A key first step to streamlining ESG reporting is to identify the barriers to data sourcing, both internal and external. If departments cannot easily provide data needed for reporting, then the organization has to invest staff time in finding and providing data. It is worth dedicating some resources upfront to overcoming those barriers to save time and resources in reporting.

A related task is for organizations to identify how to connect their data systems. This allows the organization to remove staff from the process of consolidating or transferring data for reporting, and it enables the organization to more easily obtain information from internal departments as well as external partners. To ensure the accurate sharing of information across systems, the organization must standardize data formatting. Once its data systems are connected, the organization should adopt regular reviews of the data governance and storage setup to check that data flows among systems correctly.

If it has been a while since the organization set up its ESG reporting, it is a good idea to re-evaluate the number of metrics it reports to ensure they are still applicable to regulatory compliance and the interests of stakeholders. It is also worthwhile to establish a cadence for revisiting metrics and reporting topics so that the reporting can remain aligned with business changes. Although there are some aspects of ESG reporting that are outside of an organization’s control, through planning the company can address common challenges that make the process difficult.

Note: Data in this content was accurate at the time of publication. For the most current data, visit apqc.org.

About APQC

APQC (American Productivity & Quality Center) is the world’s foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management (KM). With more than 1,000 member organizations worldwide, APQC provides the information, data, and insights organizations need to support decision-making and develop internal skills.

This content includes median values sourced from APQC’s Open Standards Benchmarking database. If you’re interested in having access to the 25th and 75th percentiles or additional metrics, including various peer group cuts, they are either available through a benchmark license or the Benchmarks on Demand tool depending on your organization’s membership type.

APQC’s Resource Library content leverages data from multiple sources. The Open Standards Benchmark repository is updated on a nightly cadence, whereas other data sources have differing schedules. To provide as much transparency as possible, APQC will always attempt to provide context for the data included in our content and leverage the most up-to-date data available at the time of publication.

About the author

Marisa Brown is senior principal research lead, supply chain management, APQC. She can be reached at [email protected].

SC
MR