Your essential guide to ESG reporting
Environmental, Social, and Governance (ESG) reporting has emerged as a vital component of corporate operations on a global scale. In the UK, companies are now encountering increasing demands from regulators to divulge their ESG performance to stakeholders. Understanding the obligations around ESG reporting in the UK is essential for businesses aiming to adhere to regulations, safeguard their reputation, and appeal to investors.
This in-depth guide will delve into the regulatory environment and outline the criteria for companies mandated to report on ESG in the UK, along with detailing the essential requirements and optimal practices for ESG reporting.
The increasing significance of ESG reporting
ESG reporting has surged in significance in recent times as the spotlight intensifies on issues like climate change, social equity, and corporate governance. Investors, regulators, and stakeholders are placing greater emphasis on businesses’ sustainability efforts and their effects on the broader society and environment.
In the UK, there is a strong governmental push towards achieving net-zero greenhouse gas emissions by 2050. As a result, companies are mandated to disclose their ESG performance, emphasising transparency and accountability. This not only showcases a company’s dedication to sustainability but also allows investors to evaluate the risks and opportunities linked to their ESG practices.
Navigating ESG reporting requirements in the UK
Various regulations in the UK stipulate ESG reporting, each with distinct requirements and parameters. These encompass:
- The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013
- The Non-Financial Reporting Directive (NFRD)
- The UK Stewardship Code
- The Task Force on Climate-related Financial Disclosures (TCFD) recommendations
ESG reporting requirements in the UK are tailored to the size and nature of the company. Let’s delve into the specific reporting obligations outlined in each regulation mentioned earlier.
1: Companies Act 2006
In accordance with the Companies Act 2006, specific companies must incorporate a strategic report and a directors’ report in their yearly disclosures. The strategic report is designed to offer a comprehensive insight into the company’s operations, its strategic direction, and the potential risks and uncertainties it encounters.
The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 mandated large and medium-sized companies to incorporate details on environmental, employee, and social aspects in their strategic report, signaling a shift towards greater transparency and accountability in corporate disclosures.
Large companies are mandated to incorporate a non-financial information statement that encompasses ESG matters within their disclosures. This obligation applies to:
- All UK public companies (PLCs)
- Large private companies with at least 250 employees and either a turnover of more than £36 million or a balance sheet total of more than £18 million
2: Non-Financial Reporting Directive (NFRD)
The European Union’s Non-Financial Reporting Directive (NFRD) was integrated into UK law via The Companies, Partnerships, and Groups (Accounts and Non-Financial Reporting) Regulations 2016. This directive mandates specific large companies to disclose non-financial information, encompassing crucial ESG aspects.
The Non-Financial Reporting Directive (NFRD) is applicable to:
- Large Public Interest Entities (PIEs) with more than 500 employees
- Listed companies, banks, and insurance companies
These companies are obligated to disclose information regarding their policies, achievements, and potential risks associated with environmental, social, personnel, human rights, and anti-corruption issues.
3. UK Stewardship Code
The UK Stewardship Code serves as a voluntary framework for institutional investors, outlining optimal practices for engaging with investee companies on ESG issues. While its primary focus is on investors, the code also holds implications for companies, urging them to prioritise ESG considerations in their interactions with stakeholders.
For companies seeking investment from code signatories, readiness to engage with investors on ESG matters is paramount. This entails sharing insights on how they handle ESG risks and opportunities, along with showcasing how ESG factors are seamlessly integrated into their business strategy for informed decision-making.
4: Task force on climate-related financial disclosures (TCFD) recommendations
While the Task Force on Climate-related Financial Disclosures (TCFD) offers a voluntary framework for companies to disclose climate-related financial information, the UK government has revealed plans to make alignment with TCFD recommendations compulsory for certain companies by 2025.
The required range of TCFD-aligned disclosures encompasses:
- Listed companies
- Large private companies
- Banks, building societies, and insurance companies
- Pension schemes
- Occupational pension schemes with more than £5 billion in assets
Essential criteria and best practice for ESG reporting
To ensure effective ESG reporting, companies should adhere to the following key requirements and best practices:
- Materiality: Prioritise the ESG issues that hold the most significance for your company and stakeholders. Conduct a thorough materiality assessment to pinpoint the ESG factors that wield the most influence on your business and those invested in its success.
- Consistency: Ensure uniformity in the ESG data and information shared across various reporting platforms and throughout time. This practice will empower stakeholders to effortlessly evaluate your performance and track your progress.
- Transparency: Present your ESG performance in a clear, concise, and transparent manner, steering clear of technical jargon to ensure that all stakeholders can easily comprehend your disclosures.
- Balance: Provide a comprehensive overview of your ESG performance, highlighting not only your successes but also areas for growth. Embrace transparency by discussing the obstacles you encounter and the proactive steps you are implementing to overcome them.
- Frameworks and Standards: Utilise recognised ESG reporting frameworks and standards as your compass for disclosures, including the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the TCFD recommendations.
- Assurance: Seeking external validation for your ESG disclosures can elevate their trustworthiness and dependability. This step not only fosters confidence with your stakeholders but also showcases your unwavering dedication to transparency and accountability.
How to achieve ESG compliance successfully
To achieve ESG compliance successfully, ESG data management and the implementation of the organisation’s ESG strategy must be navigated. ESG considerations and practices must be embraced; after all, falling short under public scrutiny can easily result in reputational damage, and merely the perception of greenwashing can jeopardise sustainability efforts long-term.
Typically, finance teams are ideally positioned to spearhead the implementation of ESG reporting within organisations. Successfully navigating ESG data management and aligning it with the organisation’s ESG strategy is crucial for fostering sustainability practices.
Achieve ESG compliance with Jedox
With Jedox you can harmonise data and ESRS requirements to simplify ESG reporting and compliance.
- Ensure compliance with ESG regulations and a quick start to ESG reporting
- Create your own customised ESG reports in-house
- Leverage automated data integration for more simplicity and speed
1: Automated data integration for a single source of truth
Getting all the necessary data is crucial. Benefit from Jedox powerful integration capabilities to easily connect to HR systems, ERP systems, and travel management systems and get data for your ESG reports from one proven platform.
2: Flexible ESG reports with models built in-house
ESG reporting is as unique as organisations themselves. Use the flexibility Jedox provides to customise it – by adapting existing models for ESG by your own staff on a granularity level they determine.
3: Master the most complex demands
Jedox automatically collects and reports data, from any source, using the out-of-the-box Best Practice Accelerator. It comes with an ESG dashboard and is a fast way to get started with ESG compliance and easy data-access for XBRL export generation. Data can be quickly analysed and individually filtered through all legal entities, and it is possible to easily drill down to individual months or to compare budgets to actuals.
4: ESG strategy for long-term goals
Jedox enables setting long-term targets, creating and managing initiatives, and doing what-if scenario planning of those initiatives, including projecting those into the integrated P&L and cash flow for strategy planning.
Summary
ESG reporting has evolved into a fundamental pillar of corporate accountability in the UK, with a multitude of regulations mandating companies to unveil their ESG performance. Knowing which entities are obligated to report on ESG in the UK is vital for companies to uphold compliance, safeguard their image, and entice investors.
By following essential guidelines and implementing top-notch strategies, companies can guarantee impactful ESG reporting and showcase their dedication to sustainability, ultimately fostering a more robust and environmentally friendly economy.
About Kybos
Kybos is a dedicated UK Jedox gold partner. We build planning and analysis solutions that deliver value fast using accountancy qualified consultants. Whether you want a fully customised application or to build upon an existing solution, Kybos consultants are here to help.