• Many companies are taking action toward a more sustainable future, but are not taking the step to report on their efforts and outcomes.
• There are concrete steps that companies can take to start disclosing their ESG initiatives and data.
• This article is part of the "Financing a Sustainable Future" series exploring how companies take steps toward funding and setting their own sustainable goals.

In 2018, Rachel Hutchisson, vice president of global social responsibility at Blackbaud, a technology company that makes cloud software for non-profits and other organizations, approached her CEO about putting out a sustainability report.

The company had a long history of philanthropy and volunteerism, but nothing was tracked or shared with the public. Reporting, Hutchisson felt, would help Blackbaud show its investors, employees, and customers the progress it was making around environmental, social, and governance (ESG) issues, while also helping it define its ESG identity.

"We were doing all this work to support what we sell and we're telling inspiring customer stories, but we weren't talking about us and showing off that we're a place that really cares," she said. "I wanted to do a social responsibility report to make sure our leaders really understood what we were doing."

Blackbaud released its first report that year, which Hutchisson admits was "pretty light," but it's grown to become a multifaceted document that outlines everything from the way it gives back to its communities to diversity and inclusion metrics to how its reduced its carbon footprint. As Blackbaud has grown its ESG reporting program, so too have other companies, both private and public. According to Deloitte's Center for Audit Quality, 95% of S&P 500 companies have publicly available ESG information.

While a lot of companies are embracing ESG — many are developing social purposes, hiring more diverse employees, and reducing their environmental footprint — reporting takes their actions to the next level. Like financial reporting, it includes data stakeholders can use to see if a company is following through on its ESG commitments, which then helps hold the company accountable, said Marc Siegel, EY Americas corporate and ESG reporting thought leader.

While reporting is just good practice, he said, more people are demanding to see actual metrics. EY found that 90% of investors want consistent reporting of ESG performance measures, while employees and management want reporting to help them run their businesses better. Regulators are also moving to mandate the inclusion of some ESG metrics within a public company's financial reporting.

"There are a lot of reasons to report, but if you think about what gives a company a valuation it's a multiple on earnings, which includes a bunch of stuff that's ESG even if it's not labeled as such," Siegel said. "Companies get multiples because of how they're going to react to a lower carbon economy, the productivity of their employees, their belief in management. That's E, S, and G. It helps all stakeholders understand the progress you're making as a business."

How to start reporting

Creating an ESG reporting program involves a lot of conversation, developing a deeper understanding of your business, detailed data-collecting and more. Fortunately, you don't have to do it all at once, Siegel said, who suggests starting small and expanding as time goes on. You have to start somewhere, though: Here are seven steps to get you going

1. Think about why you want to report

Start by thinking about why you want to report progress and who you want to report it to, said Sandy Peters, the CFA Institute's head of financial reporting policy. "Do you want to give your investors what they want? Is it going in a securities filing document? Is it for employees?" she said. "ESG reporting is about communication so think about who you want to communicate to and why you want to report in the first place." A lot of public companies, for instance, only report because ratings agencies are now baking ESG issues into their scores, while others know it's important to their customers.

2. Do an internal ESG audit

Companies may already be participating in ESG activities, whether they know it or not. Many businesses, for instance, give employees time off to volunteer, support causes their staff care about, or have workplace health and safety policies in place. When Hutchisson began her reporting journey, she started looking at what Blackbaud was already doing. That helped her see what the company wasn't measuring, but the audit also helped inform its first report. "You can start reporting without having to be technical about it by sharing your own story," she said.

3. See what others are doing

With so many companies now publishing ESG metrics on their websites, it's a good idea to take a look through other reports and see what's being reported. At the same time, see what the rating agencies, such as S&P and Fitch, are looking for – they tend to want information on greenhouse gas emissions, workforce diversity, waste and pollution, and much more.

Also, consider looking at the new International Sustainability Standards Board's standards. It has several broad topics and industry-specific metrics to consider. "When companies say, it's overwhelming I don't know where to start, well we say you can start with these topics — it's manageable," said Neil Stewart, director of corporate outreach at the Value Reporting Foundation.

4. Do a materiality assessment

Once you've done research on what you may want to report, you need to do a materiality assessment, which involves figuring out exactly what you want to report on, Siegel said. You're not going to discuss everything – there are an endless amount of metrics to consider, many of which won't apply to your business.

This process, which should ideally be done by an ESG committee of people from across various departments, involves interviews with stakeholders – investors, executives, staff, clients, and community members – to find out what ESG issues are most important to tackle. "It could come in the form of a heat map with all different issues, such as ones that are most important to stakeholders and ones that have the highest impact on value," Siegel said.

5. Connect your ESG metrics with your financial ones

Part of building a reporting program is ensuring your ESG metrics relate to financial performance, noted Siegel. For instance, it's well understood that diverse employee populations bring more perspectives to the table, which then spurs innovation. It's important to connect the two: What kind of financial boost from increased innovation could you get from hiring more diverse staff?

"Think of it like a mosaic," he said. "The ESG data shows one part of the picture, while the financial information shows another. Put it all together and it brings the picture into focus."

6.  Start collecting data

Once you know what you want to measure, you need to start measuring it. There are many different ways to gather information, whether it's through employee and customer surveys, generating reports from cloud-based technologies, such as human capital management software that can present diversity metrics or enlisting outside help to track carbon emissions.

Your company will need to think carefully about how best to gather and then analyze information, but Peters also said businesses need to develop internal controls so they know the information they're collecting is accurate. For instance, she said it's important to have the right people accessing data and that your software is tracking the proper metrics so you can be sure everything is correct.

7. Report and review

Eventually, it will come time to report. The way you present your information and to which stakeholders will depend on the objectives you discussed at the start. Blackbaud, as with most companies, reports annually, but you could also report quarterly alongside your financials. Most reports show how specific categories have improved over the years, just like a financial-focused annual report would, but they also tell the story of the company's ESG journey.

When your first report is finished, you'll want to start some of these processes over again. Blackbaud just completed a "mini-material" assessment, where they went back to some stakeholders to see if there were other ESG metrics to consider.

"We've added significantly in the third and fourth version of our report — it's like building muscle. It can be really intimidating, but you don't have to do it all overnight," Hutchisson said.