An Overview of ESG reporting

What is ESG reporting?

ESG reporting stands for Environment, Social, and Governance which are three components of sustainability that determine an organization’ success in the long-term. ESG reporting reveal measurable activities that how well organizations integrate environmental impact, social responsibility, and governance practices. ESG reporting includes strategies and operations to create tangible value which benefit the company and stakeholders. ESG reporting, therefore, is a key area of focus for business looking to improve their sustainability credentials (Emerick, D., No Clue). In present, management teams at listed and public-interest companies are increasingly being required (by stock markets and government bodies) to provide ESG disclosure with their quarterly and annual reporting. Moreover, it is a communication tool that play an important role in convincing skeptical stakeholders such as investors, creditors, employees, consumers, etc. by showing transparent organization’s actions, risks, and opportunities. In contrast, Ineffective or mislead ESG reports may be considered greenwashing (Peterdy, K., 2023), which occurs when the management team within organization makes false, unsubstantiated, or outright misleading statements or claims about the sustainability of a product or service without a verifiability principle, or even about business operations more broadly. However, some greenwashing is unintentional, due to a lack of knowledge or understanding on the part of management, but sometimes greenwashing is also carried out intentionally through marketing efforts (Peterdy, K., 2022).

Scoring an ESG

As for an ESG score is an objective measurement or evaluation of a given organization, fund, or security’s performance under ESG issues. ESG scoring could be either industry-specific or industry-agnostic. Industry-specific scoring system evaluates issues that regard as material to the industry at large like substances of material, context of materials, or acquiring process of material, while industry-agnostic corporate broadly accepted factors that are meaningful across industries like climate change, human rights, or Diversity, Equity and Inclusion (DEI) (Miller, N. 2022). Courtnell, J. (2022) from Green Business Bureau (GBB) described ESG reporting in two types as 1) ESG Framework and 2) ESG Standard. ESG Framework is a framework is broad in its scope, giving a set of principles to guide and shape understanding of certain ESG topic. ESG frameworks will guide the direction of ESG reporting, but will not provide a methodology for the collection of information, data, or the reporting itself. Framework are useful to use alongside ESG standard, or when a well-defined standard does not exist. On the other side, ESG Standards are more specific in their focus. They contain detailed criteria explaining what needs to be reported. In the context of ESG, this means standards dedicate how information and data are collected, and how a report needs to be produced such as what topics and areas to include. Standards make frameworks more actionable by ensuring comparable, consistent, and reliable disclosure that appear in a report.

Standards and frameworks for ESG Reporting

 While, Byrne, D. (2023) from Corporate Governance Institute (CGI) stated ESG reporting frameworks are more about principles and focus on grater questions, such as how information is structured, what information is collected, etc. and ESG reporting standards are more technical. They give specific requirements, like precise metrics for reporting each topic. Standards and frameworks should be used together for ensuring reliability of the reports. In addition, Letta, A. T. (2022) from esg.tech supported that the frameworks provide an overview of the structure and topic to be addressed. Standards provide detailed structures, including specific metrics and detail criteria. Frameworks are sometimes put into practice in absence of well-defined standards and/or allow flexibility in setting direction for reporting without prescribing a specific methodology. In more detail, Courtnell, J. (2022) divided ESG Frameworks into 3 categories including 1) Voluntary Disclosure Framework, 2) Guidance Framework, and 3) Third-Party Aggregators. Under voluntary disclosure frameworks, an organization actively discloses its sustainability-related policies, practice, performance data, and information related to ESG criteria, which includes checklist 25 steps of GBB. Popular voluntary disclosure frameworks are 1) Carbon Disclosure Project (CDP) 2) Global Real Estate Industry Benchmark (GRESB) 3) Dow Jones Sustainability Indices (DJSI). In terms of the guidance frameworks, they provide recommended methodologies and guidance to help companies identify, manage, and report on their ESG performance. The most popular guidance frameworks are 1) Sustainability Accounting Standards Board (SASB) 2) Global Reporting Initiative (GRI) 3) Task Force on Climate-Related Financial Disclosure (TCFD) 4) Carbon Disclosure Standard Board (CDSB) 5) International Integrated Reporting Council (IIRC). Finally, Third-Party Aggregators refer to framework that assess an organization’s performance based on aggregated, and publicly available data. The Data is collected from company-sourced filings, publications, company websites, annual reports, and/or sustainability or CSR reports. The main third-party aggregators are 1) Bloomberg Terminal ESG Analysis 2) Institutional Shareholder Service (ISS E&S) Quality Score (ISS) 3) Morgan Stanley Capital International (MSCI) 4) Sustainalytic. On the other hand, there are only 2 ESG reporting standards showed, which are 1) European Financial Reporting Advisory Group (EFRAG) and 2) International Sustainability Standard Board (ISSB). When, Byrne, D. (2023) mentioned only 4 common ESG report frameworks, which falls under the guidance frameworks, comparing with data from Courtnell, J. (2022), including 1) Task Force on Climate-Related Financial Disclosure (TCFD) 2) International Integrated Reporting Council (IIRC) 3) Global Reporting Initiative (GRI) 4) Carbon Disclosure Standard Board (CDSB). And common ESG reporting standard are 1) European Financial Reporting Advisory Group (EFRAG) 2) International Sustainability Standard Board (ISSB) and 3) The sustainability Accounting Standard Board (SASB), which Courtnell J. identified it as a guidance framework. On the other hand, Letta, A. T. (2022) only stated 1) Task Force on Climate-Related Financial Disclosure (TCFD) as an example of ESG report frameworks and 2 global recognized ESG report standards including 1) Global Reporting Initiative (GRI), which both Courtnell, J. and Byrne, D. identified as a guidance framework, and 2) Sustainability Accounting Standards Board (SASB), which Courtnell, J. identified as a guidance framework, but D. argued it is a standard as well as Letta, A. T.

ESG in Thailand

In Thailand, we are at the starting point to surf on ESG flow. The Stock Exchange of Thailand (SET) revealed Sustainability Reporting Guide for listed companies together with ESG metrics for each industry group in 2022. The guide line for sustainability reporting also complied with the 56-1 One Report form and can be used as a vital checklist for sustainable business development and investment (SET, 2022). Apisak Kiewkarnka, deputy manager and head of finance for the SET, said the bourse had developed a SET-ESG framework focused on fulfilling 4 specific sustainable development goals: 1) industry innovation and infrastructure ()SDG-9, 2) responsible consumption and production (SDG-12), 3) reduce inequity (SDG-10), and 4) climate action (SDG-13) (Kiewkarnka, A., 2022), while Anantananon, R. (2022) assistant manager and head of sustainable business for the SET added there are 2 platforms are under development 1) SET ESG Data Platform to make ESG-related data disclosure mandatory for companies 2) SET ESG Academy to rise awareness regarding ESG among companies and universities. An intimate partner to stock exchange sector as the bank industry in Thailand also announced ESG declaration in 2022 in order to set the banking industry’s clear common direction in addressing ESG agenda. The Thai Bankers’ Association (TBA) outlined action priorities in addressing ESG risks and opportunities regard to climate change (SDG-13), diversity and human rights (SDG-5), financial inclusion (SDG-8), and reduced inequities (SDG-5), while fully supporting Thailand toward UN SDGs and commitment to the Paris Agreement. All TBA members agreed on 6 shared action priorities including 1) Governance 2) Strategy 3) ESG Risk Management 4) Financial Product 5) Communication 6) Disclosure (BOT & TBA, 2022). Assoc. Prof. Phd. Nattavud Pimpa Assistant Dean Sustainability, College of Management, Mahidol University stated that Thai businesses are still leaning to fully comprehend the need to integrate ESG factors into their operations. Great obstacles in adopting ESG are the lack of consensus and consistency in ESG reporting and measurements, lack of the manpower or technology to devote to the extension effort required to collect and analyze ESG data, and lack of transparency in formal systems (Pimpa, N., 2023).

Current ESG Situations

It is obviously seen that there are many commotions in the ESG overview at the moment either in global or local notion in terms of reporting framework and standard, which there is no absolute for any countries. At the end of the day, all of these tangible evidences expose significant trend and transition toward sustainability from capital sector around the world. Organizations both government and Private, therefore, should start to adjust their operating mindset and monitor about related ESG issues from different fields in order to create their own ESG strategies, action plans, and clear, consistent, and align reporting frameworks, which suite for each organization and get on with their stakeholders. Each organization from different backgrounds and industries may requires different necessary resource and expertise to manage, collect, and analyze reliable ESG data, in some organization will consume higher cost and time for accomplished goals though (Pimpa, N., 2023). However, Thailand is a leader in 6 Asean countries (Singapore, Malaysia, Thailand, Vietnam, Indonesia, and Philippines) in terms of average ESG performance. The sustainability disclosure performance ranking in 2019 by Corporate Knights, a research firm, the Stock Exchange of Thailand ranked 9th of 47 stock exchanges worldwide, which is the highest of all of the APAC region. Following by The Singapore Exchange, Philippine Stock Exchange and Indonesia Stock Exchange rake 24, 30, and 36, respectively. Vietnam and Indonesia show higher unmanaged ESG risk due to lower managed score and higher exposure to high ESG risk industries such as mining, oil and gas, steel, i.e. (Pan, F., 2021) and (Walker, R., 2021).

ASEAN ESG performance comparison 2019

Source from: Sustainalytics https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/esg-disclosure-and-performance-in-southeast-asia

References:
  1. Byrne, Dan (2023) What’s the difference between ESG reporting standards and frameworks. [online] London: Corporate Governance Institute (CGI). Available from: https://www.thecorporategovernanceinstitute.com/insights/guides/whats-the-difference-between-esg-reporting-standards-and-frameworks/ [Access 12 May 2023].
  2. Courtnell, Jane (2022) ESG Reporting Frameworks, Standards, and Requirements. [online] Texas: Green Business Bureau. Available from https://greenbusinessbureau.com/esg/esg-reporting-esg-frameworks/ [Access 9 May 2023].
  3. Emerick, Dean (No clue) What is ESG Reporting? [online] Ontario: ESG/ The Report. Available from: https://www.esgthereport.com/what-is-esg-reporting/ [Access 12 May 2023].
  4. Letta Anamim Tesfaye (2022) What is the difference between ESG framworks and standards? [online] Paris: esg.tech. Available from: https://esg.tech/how-to/esg-frameworks-and-standards/ [Access 12 May 2023].
  5. Miller, Noah (2022) ESG Score. [Online] Vancouver: Corporate Finance Institute (CFI). Available from https://corporatefinanceinstitute.com/resources/esg/esg-score/ [Access 12 May 2023].
  6. Pan, Frank (2021) ESG Disclosure and Performance in Southeast Asia. [online] London: Sustainalytics. Available from: https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/esg-disclosure-and-performance-in-southeast-asia [Access 13 May 2023].
  7. Peterdy, Kyle (2022) Greenwashing. [online] Vancouver: Corporate Finance Institute (CFI). Available from: https://corporatefinanceinstitute.com/resources/esg/greenwashing/ [Access 12 May 2023].
  8. Peterdy, Kyle (2023) ESG Disclosure. [online] Vancouver: Corporate Finance Institute (CFI). Available from https://corporatefinanceinstitute.com/resources/esg/esg-disclosure/ [Access: 12 May 2023].
  9. Walker, Rupert (2021) Thailand leads ESG disclosure in Southeast Asia. [online] London: MA Financial Media. Available from: https://fundselectorasia.com/thailand-leads-esg-disclosure-in-southeast-asia/ [Access 13 May 2023].
  10. Anantananon, Ratwalee (2022) Set launches platforms to promote ESG Practices. [online] Bangkok: Bangkok Post. Available from: https://www.bangkokpost.com/business/2303434/set-launches-platforms-to-promote-esg-practices [Access 13 May 2023].
  11. Bank of Thailand (BOT) and The Thai Bankers’ Association (TBA) (2022) Joint Press Release: TBA launches ESG Declaration, a strong collective commitment to expediting sustainable development toward better and greener economy. [online] Bank of Thailand (BOT). Available from: https://www.bot.or.th/landscape/en/news/2022/08/29/esg-declaration/ [Access 13 May 2023].
  12. Kiewkarnka, Apisak (2022) Set launches platforms to promote ESG Practices. [online] Bangkok: Bangkok Post. Available from: https://www.bangkokpost.com/business/2303434/set-launches-platforms-to-promote-esg-practices [Access 13 May 2023].
  13. Pimpa, Nattavud (2023) ESG: Poison or Panacea for Thai Business? [online] Bangkok: The Nation (Thailand). Available from: https://www.nationthailand.com/blogs/special-edition/esg/40026137 [Access 13 May 2023].
  14. SET (2022) ESG The Stock Exchange of Thailand (SET) introduces Sustainability Reporting Guide. [online] Bangkok: Thailand Business News. Available from: https://www.thailand-business-news.com/set/89984-the-stock-exchange-of-thailand-set-introduces-sustainability-reporting-guide [Access 13 May 2023].

Significant of ESG for business transformation

In global perspective, Environmental, Social, and Governance (ESG) have become the language of capital markets, expanding market value by maintaining value for future generation. Climate change, biodiversity, carbon emission, human right, customer relation, supply chain, board management practices, data, tax transparency, and security are examples fall under ESG heading. The increase in investor attention comes alongside an ideological shift in business sustainability and citizenship are no longer seen as philanthropic activities, but rather, vital for business success (Courtnell, J., 2022).

Impact of sustainability to corporate

The Fintech Time states ESG reports disclose data and explain the impact and added value of an organization containing summaries of activities which provides stakeholders and investors with an insight into the goals, achievement, and the impact of those organization. In addition, it shows a number of ESG Link Loans in Europe obtained quadrupled from 27 billion Euro in 2017 to 102 billion Euro in 2019. The ESG report is not being yet mandatory in all counties, an increase amounts of organizations disclose this information voluntary and use it as a proof for gain more investment though since they have recognized the importance of communicating their business strategy and the impact of their business (The Fintech Times, 2022). From 2023 onwards, more organizations will actual be obligated to publish sustainability information and degree of obligations depend on discretion of each country. For instance, the European Commission presented a new proposal for a Corporate Sustainability Reporting Directive (CSRD), which is a regulation for listed and public-interest companies reveals non-financial report (Bureau Veritas, 2023). The CSRD would be an EU sustainability reporting standard improving the existing requirement of the current Non-Financial Reporting Directive (NFRD). Under this new directive, up to 50,000 large public-interest European entities, as well as all listed companies on EU regulated market, will be required to report on ESG related factors (The Fintech Times, 2022).

How does ESG impact Thai company?

In Thailand, SET (Stock Exchange of Thailand) initially has concerned about good governance concept like in The Principles of Good Corporate Governance for Listed Company 2012, which including 1) Right of Shareholders 2) Equity Treatment of Shareholders 3) Role of Stakeholders 4) Disclosure and Transparency (SET, 2012). Afterward, the Checklist for sustainable SME Business (Antong, P.and Ekachaiphaiboon, S., 2016), which is a handbook for sustainable development of SME business, was published in 2016 and SEC (The office of the Securities and Exchange Commission) consecutively launched CG Code (Corporate Governance Code) in 2017 that mandates role and responsibility of a board of an organization on behalf of leader through determining targets of business (CG Thailand, 2017). It comprises of 8 categories such as Establish Clear Leadership Role and Responsibility of the Board, Define Objective that Promote Sustainable Value Creation, Strengthen Effective Risk Management and Internal Control etc. Lastly, the Corporate Sustainability Guide for Listed Companies was launched in 2020 by SET (Santhayati, N. et al., 2020).

Collaboration among organizations

In terms of risk management, SET adopted COSO-ERM 2017, which is an enterprise risk management guideline from collaboration between COSO (the Committee of Sponsoring Organization of the Treadway Commission), which composed of  5 big professional commissions 1) The American Institute of Certified Public Accountants or AICPA 2) The Institute of Internal Auditor or IIA 3) The Financial Executives Institute or FEI 4) The American Accounting Association or AAA 5) Institute of Management Accountants or IMA) (Kamhaengpol, T, 2016) and WBCSD (World Business Council for Sustainable Development), as ESG Risk for Thai companies (Chayaviwattanawong, C., 2018). It obvious that SET and SEC continuously strive to enhance sustainability issue for a decade and sustainability guideline and regulation gradually strong as global trend.

Understanding the importance of ESG report

Understanding the importance of ESG reporting requires a mindset shift, one that does not consider ESG regulation as a burden, but perceives reporting as a means of transparency. This transparency entails capital and create solutions for the major global challenges such as climate change, equity, and security, which correlate with Sustainable Development Goals (SDGs) of the United Nation. The transparent, moreover, also encourages essential accountability for collaboration with other stakeholder and developing actionable solutions.                Especially, investors and lenders will increasingly use the transparence given by a ESG report to evaluate a company’s risk exposure and determine its possible future financial performance. Despite of investors, customers are also demanding products and/or services from responsible brands (Courtnell, J., 2022). The First Insight (2023) shows customers, particularly Gen Z, are more willing to support brand with effective ESG strategy with 62% of Gen Z prefer to buy from a sustainable brand, and 73% of them are willing to spend up to 10% more for a more sustainable product/service. On the other hand, 79% of Millennial employees consider the sustainability agenda of an employer before making their career choices. This means reporting ESG will boost an organization’s chances of attracting new talent (Cone, C., 2022). While MSCI (2021) argues sustainable investment goes beyond Gen z and millennials, but becoming requirements for key industry participants, such as institutional investors and listed company. In order to use ESG reporting to plot an effective ESG strategy, Organizations need to set clear targets to reduce environmental, social, and governance risk, then evidently measure their progress and annually report in a transparent manner. Moreover, organizations had better set actionable initiatives that will support ESG compliance and their ESG strategy (Courtnell, J., 2022). Korn Ferry, which is a global organizational consulting firm, also defines ESG as a sustainable strategy that you have to change rather than inevitable. An organization requires to define a purpose, then develop the skills, talent, leaders and culture that it needs to achieve. For the purpose, one should start with “Set the tone of the top” by setting commitments, then bringing them to everyday life and behavior of leaders across the organization. After the leaders can perform the change, it is the starting point for infuse purpose and ESG objectives into organization culture, and empower employees to devote in purpose, and be active part of change, for good. However, A Set of targets should be established and regularly measured outcomes of ESG Driven strategy and actions by qualitative or quantitative metrics (Korn Ferry, 2023). In more detail, each organization should get an overview of all ESG-related information that is available across different departments and stakeholders and decide which ones are most relevant for you. This is the so-called materiality assessment. In addition, technology and software can already simplify the data collection process immensely today and give you guidance in the jungle of reporting requirements. Then, decide on the reporting framework you want to use and ensure reliability and transparency in your reporting – that is the key. Lastly, communication is a highlight that shows how your ESG report aligns with your business strategy for both to the public and the stakeholders (The Fintech Times, 2022).

All of these evidences exhibit endeavors from capital sector around the world for enhancing sustainability concept together with other industrial sectors. Initially, it seems hit-and-miss according to wideness and deepness of sustainability realm and its contrary idea from Industrialization. However, the sustainability and climate change are unavoidable issues and effect to human life directly. These concepts have been seriously developed over two decades in many ways either scientific or social since the Kyoto Protocol in 1997 until the United Nations Framework Convention on Climate Change Conference of the Parties: UNFCCC (COP) 27 in 2022. Those developments conduce significant transformation in our world in many ways of life, especially in economic system. Therefore, ESG will play an important role for mandating business operating activities of such organizations either government sector or private sector, even though it is only voluntary requirement from stock exchange in some countries at the moment. Mandatory ESG reporting soon becoming a necessary measure, companies need to familiarize themselves with the latest ESG criteria and obligations. There is a forecast from Deloitte Center for Financial Services (DCFS) that client demands to drive ESG-mandated assets to consist half of all professionally managed investments in the United States by 2025. Technologies enable better-quality ESG data and the regulatory landscape becomes clearer. Institutional, and retail investors are expected to more demand that ESG factor be applied to greater percentage of their portfolio. ESG assets should constantly grow at a 16% Compound Annual Growth Rate (CARG) in 2025 (Collins, Sean, 2020). However, mandatory ESG reporting regulations are more likely to be adopted by countries with common law origins and higher per capita carbon emissions rather than other intangible identifications such as social perception or well-being. According to this trend, the simplest solution is to dedicate staff and resources to checking ESG requirements and recommended frameworks in any country where a company wishes to conduct business as soon as possible because some change in an organization may require a period of time. Moreover, this can be a complicated, costly, and error-ridden process (Abigali Y., 2022).

References:
  1. Abigali Yu (2022) The Global State of Mandatory ESG
  2. Collin, Sean (2020) Advancing Environmental, Social, and Governance Investing: A Holistic Approach for Investment Management Firm
  3. Cone, Coral (2022) Engaging Employees at the Intersection of Purpose and Philanthropy. [Online] Massachusetts: 3BL CSR Wire
  4. Courtnell, Jane (2022) ESG Reporting Preparation Guide: What is ESG Reporting? [Online] Texas: Green Business Bureau
  5. Korn Ferry (2023) Critical ESG & Sustainability Question: Purpose
  6. The Fintech Times (2022) Planetly: What is ESG Reporting and Why is it Vital for Business. [Online] London: The Fintech Times
  7. The First Insight (2023) The Stage of Consumer Spending: Gen Z Shoppers Demand Sustainable Retail. [Online] Pennsylvania: The First Insight. Available https://www.firstinsight.com/white-papers-posts/gen-z-shoppers-demand-sustainability [Access 9 May 2023].
  8. MSCI: Morgan Stanley Capital International (2021) The Truth Behind 5 ESG Myths. [Online] New York: MSCI Available from https://www.msci.com/research-and-insights/visualizing-investment-data/fact-check-truth-behind-esg-myths [Access 9 May 2023].
  9. Antong, Piriyaporn and Ekachaiphaiboon, Supakorn, (2016) Checklist for sustainable SME Business. [Online] Bangkok: SET (Stock Exchange of Thailand). Available from https://www.setsustainability.com/libraries/597/item/179-checklist-sme [Access 9 May 2023].
  10. Bureau Veritas (2023) The Corporate Sustainability Reporting Directive (CSRD). [Online] Bangkok: Bureau Veritas (Thailand). Available from https://www.bureauveritas.co.th/our-services/certification/corporate-responsibility-sustainability/corporate-sustainability [Access 10 May 2023].
  11. CG Thailand (2017) Corporate Governance Code 2017. [Online] Bangkok: The Securities and Exchange Commission, Thailand. Available from https://www.sec.or.th/cgthailand/EN/Pages/CGCode/CGCodeIntroduction.aspx [Access 10 May 2023].
  12. Chayaviwattanawong, Chayapa (2018) ESG Risk. [Online] Bangkok: SET (Stock Exchange of Thailand). Available from https://www.setsustainability.com/libraries/1181/item/esg-knowledge-package-esg-trend-risk-assessment?category=33&type=0&search= [Access 9 May 2023].
  13. Kamhaengpol, Thanormluck (2016) Internal Control under COSO Guideline. [Online] Bangkok: Provincial Waterworks Authority. Available from https://reg7.pwa.co.th/kmr7/?p=378 [Access 10 May 2023].
  14. Santhayati, Nareerat, Thawaranon, Pornchai and Kittiboonyanon, Sukit (2020) the Corporate Sustainability Guide for Listed Companies. [Online] Bangkok: SET (Stock Exchange of Thailand). Available from https://www.setsustainability.com/libraries/852/item/Corporate%20Guide?category=19&type=Practical%20Action&search= [Access 9 May 2023].
  15. SET (2012) The Principles of Good Corporate Governance for Listed Company 2012. [Online] Bangkok: SET (Stock Exchange of Thailand). Available from https://www.setsustainability.com/libraries/707/item/cgprinciple-2012 [Access 9 May 2023].