Wednesday 15 September 2021
There is a growing recognition of the importance of Environmental, Social and Governance (ESG) disclosures and reporting. ESG is increasingly included in regulation, standard-setting and guidance for organisations’ external reporting. However, as the field of ESG reporting rapidly advances in its importance, a wide array of terms has emerged over time. At the same time there is a significant gap in the disclosures provided by companies and those disclosures required or recommended. At times the variation in terminology can confuse matters when engaging with topics relating to ESG reporting.
This article provides a general overview of key terms and reference to which regulation or standard/framework use the term. The focus is on sorting out the high-level terminology namely; CSR, ESG, non-financial reporting and sustainability reporting. It is important to note that ,at times, these terms are used interchangeably to refer to the reporting by corporations and organisations that go beyond that of the financial reporting. In addition, it is beneficial to be aware that, under each pillar of ESG (environment, social and governance) sub areas of reporting have emerged. As an example, environmental reporting frequently refers to subcategories such as climate-related financial disclosures, biodiversity reporting.
Corporate Social Reporting (CSR). Corporate social reporting become one of the earlier corporate practices, dating back to the 1970’s, with (back then) a focus on major social issues related to employee and employment-related information. Corporate social responsibility is the notion that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law and union contract. It is traditionally a form of self-regulation that most large companies report on annually. In the past CSR reporting was primarily qualitative in nature, however, with the rise of standards, such as the Global Reporting Institute (GRI), there has been an increase in measurements included in CSR reports.
ESG Reporting. ESG stands for Environmental, Social and Governance criteria – and is seen as core to the way today’s responsible businesses operate. ESG in difference to CSR, focus on measuring these activities to arrive at a more precise assessment of a company’s actions. ESG reporting is a term used widely in the capital markets to describe formal corporate reporting outside the published financial reports required under the Accounting Standards (see, for example, UNPRI 2021*).
Non-Financial Reporting (NFR). NFR covers disclosure on issues like knowledge-production, contributions to sustainable development, and more broadly corporate social responsibility (CSR). The term is currently used in the EU. It is the term used in EU Directive 2014/95/EU, that requires large companies to publish reports on the policies they implement in relation to:
- environmental protection
- social responsibility and treatment of employees
- respect for human rights
- anti-corruption and bribery
- diversity on company boards (in terms of age, gender, educational and professional background)
Note that the EU Directive 2014/95/EU is planned to be replaced by the Corporate Sustainability Reporting Directive (“CSRD”). Thus, the EU is moving towards replacing the term non-financial reporting in the title of the Directive and replacing it with CSR. However, it should be emphasized that it is not only the EU who uses the term non-financial reporting. Another example is the TCFD** Guidance on Scenario Analysis for Non-Financial Companies that provides a practical, process-oriented way for businesses to use climate-related scenario analysis.
In summary, sustainability reporting, ESG reporting, CSR reporting and non-financial reporting represent reports that include both narrative (qualitative reporting) and measures (quantitative reporting) with regards to topics such as environment, social issues and governance issues.
Some companies choose to publish both a CSR report and an ESG report. In most cases the CSR report is then the more narrative report explaining the business model of the firm and how it embraces CSR, while the ESG report is then the more quantified report with measures in each of the areas (environment, social and governance).
* UNPRI 2021
** TCFD: Task Force on Climate-Related Financial Disclosures
Upcoming IASeminars courses relating to ESG and sustainability reporting
Courses being held in London:
ESG Reporting - Why you need to care
6th December 2021
Accounting for Climate Change
7th December 2021
Courses being held in our Virtual Classroom:
ESG Reporting - Why you need to care (Virtual Classroom)
19th October 2021
Environmental Social and Governance (ESG) - data, accounting and reporting (Virtual Classroom)
15th – 18th November 2021
ISAE3000(R) - International Standard on Assurance Engagements 3000 (Revised) - Comprehensive Workshop (Virtual Classroom)
9th – 10th November 2021
If you are interested in attending any of our courses let us know. There’s a "Keep Me Updated" button on each course page – click that and fill out the form to let us know of your interest and we can keep you updated about the arrangements for the course and answer any questions you may have.