What Is ESG Reporting? HR’s Role and How To Prepare for 2024

ESG reporting is a fantastic tool that allows investors and stakeholders to gain insights into how a business operates and its impact on employees, customers, and communities. It can also provide invaluable information for HR, helping them create a more sustainable, transparent, and fair workplace.

A primer on ESG reporting 

ESG reporting means disclosing data on environmental, social, and governance aspects of your business. Historically, the focus was almost always on the environmental component. But new legislation has started to slowly change that in the past few years.

According to the Visier 2024 Trends Report, employees are now in the spotlight and people data is more important than ever. The “S” in ESG is taking the lead and bringing forth important issues, like diversity and inclusion. Companies must report on things related to demographics, pay equity, work-life balance, human rights, and more.

The introduction of the European Union’s Corporate Sustainability Reporting Directive (CSRD) will impact over 50,000 companies in the EU and over 10,000 outside of the EU. To be compliant, businesses worldwide need to step up their reporting in areas related to the environment or human capital.

What goes into an ESG report? 

One goal of ESG reporting is to give stakeholders a comprehensive view of the company’s performance in the three key areas: environmental, social, and governance. 

Local regulations such as the Securities and Exchange Commission (SEC) and the CSRD come with specific requirements about what you should include in your report. But regardless of where you’re based, and what standards and regulations you need to comply with, there will be some key components in all your reports.

• Environmental factors. This includes information about your water consumption, waste management, gas emissions, and energy consumption. Depending on your activity sector, you may need to go more in-depth and report on more data. 

• Social factors. Here you’ll need to include data on labor practices, DE&I, work-life balance, and human rights policies. This is the part where HR will need to step in, analyze the people data, and create the reports. 

• Governance factors. This includes information about the company's governance practices, leadership, compensation, and more. HR can handle a good part of this, but it shouldn’t be all in their hands. Management should step in to provide input and support.

If you’re used to corporate reporting, you may be wondering where the financial data is. The short answer is: not here. 

Corporate reporting takes a broader look at a company’s metrics and usually includes financial data. ESG is a report focused only on its three key dimensions and doesn’t include financial information. You can merge the two reports into one if you’d like, but that’s not mandatory.

ESG report requirements

How often you publish an ESG report can vary depending on local regulations, industry, and other factors. Most companies choose to publish these reports annually, alongside their financial reports. 

This practice is often easier for companies. You can gather all your data throughout the year and then analyze it and create a comprehensive report. It is also appreciated by investors and stakeholders, who can compare ESG performance with financial performance and get a better view of the company’s progress.

Some choose to create ESG reports quarterly. This is more common in industries where ESG-related factors change quickly. In this case, one option would be to create shorter ESG reports, focused on specific issues throughout the year, and a more comprehensive one annually.

There are a few other ESG reporting requirements you should consider.

• Make it easy to access. Don’t hide your reports or make them hard to access. One goal of ESG reporting is increasing transparency, so make sure people can find and read your reports. Publishing them on your site is a good idea and something many companies are currently doing.

• Stay objective. Include both positive and negative data in your reports. It could feel like you're shooting yourself in the foot, but being honest and transparent will prove you’re open about your business and that you know what you need to improve.

• Look at future possibilities. That means including information on how the company generates revenue, but also risks and opportunities for change. 

The role of ESG in HR

HR plays a big role in creating ESG reports. ESG reports also help HR improve critical processes, like recruitment and retention, that will help the company reach its goals.

The HR team is the one that is a key driver of DE&I initiatives, oversees compensation programs, advocates for employees’ work-life balance, and so much more. That’s why, when creating an ESG report, HR is key in providing employee-related data. No other team is better placed to analyze this information and see the patterns and results that can help the company make progress. People analytics plays a critical role in this process.

Organizations that use people analytics are better prepared to access the necessary data and glean critical insights on nuanced metrics relating to employee training and development, skills, performance, and talent mobility. With people analytics, HR leaders can provide instant insight into advanced metrics like skills acquired, gender distribution by job tier, the average compensation ratio, and the drivers of resignation rate to meet reporting requirements and drive the strategic narrative.

Armed with insights, HR can help the organization understand how other factors included in the ESG report can affect the business. For instance, environmental factors can harm employee health and decrease productivity. 

5 ESG HR metrics

There are tons of metrics you can use for your reports. As with most things related to ESG, a lot will depend on your industry, business model, location, and the laws and regulations you must comply with. Here are five HR metrics that most companies will need to use.

1. Energy consumption

Most companies will measure their energy consumption in kilowatts per hour (kWh). No matter your sector, it’s highly likely you’re using electricity to conduct your business. The source might not always be sustainable, but tracking this metric can help you moderate your energy usage.

2. Waste output

Regardless of your sector, waste is another metric you can track. This can include things like plastic, metal, or other materials, poisonous substances, radioactive waste, and more. Some can be recycled, some are dangerous and must be handled with care. Measuring this metric is about quantity, so you’ll see it in kilograms, cubic meters, or tons.

3. DE&I inclusion percentage

Measuring DE&I percentage will depend on your location, company size, and other factors. You could look at gender ratio, or race or ethnicity ratio. The goal is to establish the diversity percentage by group in relation to the demographics.

4. Employee engagement

Engaged employees are happier, more productive, and less likely to quit unexpectedly. Conversely, low engagement leads to decreased performance, productivity, absenteeism, and attrition. 

There’s no one formula to show you how engaged an employee is. You’ll need to use things like surveys or the employee net promoter score to determine a benchmark.

5. Executive’s pay ratio

Part of the “governance” factor of ESG, the executive’s pay ratio shows how much executives are paid in relation to the average employee. It is widely known and accepted that executives make more than their employees. But did you know in some cases they could earn up to 5,000 times more? Adding this metric to your ESG report can help you keep the disparities in check.

How HR can shape the ESG agenda

HR is the cornerstone of your ESG reports. They can collect and analyze data related to social factors. But they can also see how the other two components—environmental and governance—impact the human capital. 

Their role goes beyond data collection and reporting. They’re constantly shaping and leading the entire ESG agenda for the company. HR can create an ESG strategy that is aligned with the bigger company goals. This will help them improve various critical processes like talent acquisition, reskilling, or engagement.

They’re the best at keeping an eye on DE&I initiatives and can help develop policies and programs that will create a diverse and equitable workplace. Plus, they know the ins and outs of your compensation programs, ensuring everyone is paid fairly.

HR can also help improve governance practices and encourage employees to take part in various sustainability initiatives.

Your HR team will not only boost your ESG efforts, but they can actively shape it. Their knowledge of the workforce's dynamics and culture is crucial for upholding the company's ESG principles and creating a sustainable, fair, and transparent workplace.

On the Outsmart blog, we write about workforce-related topics like what makes a good manager, how to reduce employee turnover, and reskilling employees. We also report on trending topics like ESG and EU CSRD requirements and preparing for a recession, and advise on HR best practices like how to create a strategic compensation strategy, metrics every CHRO should track, and connecting people data to business data. But if you really want to know the bread and butter of Visier, read our post about the benefits of people analytics.