January 23, 2025
As we are well into the new year, we are also well into ESG/sustainability reporting season. For many companies aiming to deliver their ESG or sustainability report to stakeholders in the second quarter, the start of the year is a busy time for setting your reporting strategy, gathering highlights and data, and pulling together a cohesive story.
While we likely won’t start see many 2024 reports published until early spring, here are some trends we can expect for this reporting cycle:
1. More and more companies are moving away from “ESG”
The term “ESG” (environmental, social and governance) has become all too political, and, at times, polarizing and a magnet for negative attention. As a result of the ongoing anti-ESG movement, many companies have already moved away from this term for their report, and we expect more to do so during this reporting cycle.
Alternate examples include “sustainability,” “corporate responsibility” and “impact.” Other companies have chosen a more branded approach, such as the Allbirds Flight Status or the Johnson & Johnson Health for Humanity Report.
Regardless of what you call your report, the narrative, data and progress inside are generally what matter to your stakeholders. You may want to stand your ground on ESG, but don’t let the name be a distraction for skeptics and critics.
2. Diversity, equity and inclusion is not going away, but companies are evolving their story
From the U.S. Supreme Court affirmative action ruling to activism from Robby Starbuck, the National Center for Public Policy Research and other challenges, a commitment to diversity, equity and inclusion (DEI) has become a hot-button issue. While some companies have responded to the external pressure by publicly backing off on their DEI-related programs and policies, many others are taking a more nuanced approach by rebranding their commitments. “Employee experience,” “inclusion,” “belonging” and “culture” are moving to the forefront when companies talk about programs that promote a welcoming workplace where everyone has an opportunity to thrive. We are seeing a particularly strong move away from using the word “equity.” These changes may be difficult to communicate to your DEI supporters, but you can understand the need from a risk mitigation standpoint.
Alternatively, some companies are weaving DEI-related messaging and programs throughout their report as opposed to having a standalone section. It is also likely that some companies will dial back their external communication around DEI while continuing their efforts internally. Many companies can point to individual success stories related to DEI, but there is no doubt that aggressive, far-reaching metrics and goals have fallen out of favor.
3. Reporting approaches will generally stay the course – for at least one more year
Given the current external landscape – a new U.S. administration, impending regulatory requirements, divided perspectives on ESG/sustainability – we don’t expect many companies to make big changes to their reporting approach for the 2024 cycle. Companies that are subject to the EU’s Corporate Sustainability Reporting Directive (CSRD) have completed or are working on a double materiality assessment that will guide future reports. They are also ramping up capabilities and bandwidth to address requirements for CSRD, California climate laws and more.
Because there is a lot of anticipated change coming in 2026 and beyond, now may not be the time to make large changes to your reporting approach. However, it remains important to highlight continuous improvement through examples and data to demonstrate that your commitments remain strong. We also recommend that companies work behind the scenes to build the strategy, process and disclosures that will be needed for mandatory reporting. This is probably best done before and after your next report. In other words, this year, there will be no reporting “off-season.”
4. The rise of the ESG controller
ESG/sustainability reporting should always be a team sport – it requires a cross-functional approach to ensure your company tells a comprehensive, impactful and accurate story. As stakeholders’ interests grow and evolve, more players, such as the designation of an “ESG controller,” help ensure you are working with a strategic, comprehensive view.
Driven by increasing regulatory requirements and the need for more transparency in data reporting, the ESG controller is responsible for leading the collection, analysis and assurance of ESG data. They establish internal controls and reporting structures to ensure accurate data and documentation about processes and resources used to collect and verify the data. In short, they can bring similar rigor to non-financial disclosures as has been applied to financial reporting to – an expectation that is likely to continue to grow. The ESG controller, which will be a new role in most companies, is typically someone with a finance background who becomes immersed in ESG, not the other way around.
Collaboration in reporting is key, and if you haven’t fully engaged your finance team in your process, now is the time. As sustainability continues to be part of how your company does business (vs. an ancillary activity), integration into business functions is imperative.
5. Slow transition to IFRS/ISSB standards
In addition to a steady reporting approach, we expect many U.S. companies will make a slower transition to the International Sustainability Standards Board’s (ISSB) IFRS Sustainability Disclosure Standards (S1 and S2). These voluntary standards build on the foundation set by the Sustainability Accounting Standards Board (SASB) standards and Task Force on Climate-related Financial Disclosures (TCFD) recommendations, both of which are now under the governance of ISSB.
ISSB states that SASB and TCFD are still relevant frameworks to report to, and in some instances, reporting to the TCFD recommendations will go a long way toward meeting reporting regulations, such as the California climate disclosure law. In addition, reporting to IFRS S1 and S2 is new territory and likely not something companies will voluntarily jump into quickly, particularly if they’re already navigating toward CSRD compliance.
At the end of the day, your report should be designed to meet the needs and interests of your stakeholders, and that includes the reporting frameworks you align with. That’s my story and I’m sticking to it.
What other reporting trends are you seeing, how are you addressing them and what are the open questions? Send me a note and let’s connect.
