CEO Insight: ESG reporting is more essential now than ever

written by Michael Pooley, 12th септември 2023, in CEO Insights

No journey to net zero is straightforward. Putting ESG (Environmental, Social, Governance) principles at the core of a business ensures that sustainability and long-term value creation is deeply embedded into operations. What are the challenges to such an approach?

With the rapid rise of the ESG (Environmental, Social, Governance) movement, it’s easy to forget its origins. The concept first appeared in a 2004 UN white paper, Who Cares Wins, which set out convincing arguments for responsible investing. Central to such investments would be businesses that take measures to protect the environment, better society and improve corporate governance, which was summarized as "ESG".

The white paper title is a modern-day alternative to "who dares wins", the motto made popular by the British Special Air Service (SAS), which was itself inspired by the Latin Quem ousa vence. In my view, it’s a combination of these ideas that will lead the fresh grocery supply chain to where we need to be. We should dare to be bold in our actions. And we need to care about the broader impact of those actions – not just on business, but also on our planet and society.

However, boldly embedding ESG principles into an international organization is a complex process and not without challenges.

The ESG focus on business, planet and society

How do we thrive in the 21st century, not just as a business, but as a society on a thriving planet? This is the question we need to be constantly asking ourselves as we continue to adapt to societal, geopolitical and climate changes. This one question helps focus our attention on the three components of ESG, which are inextricably linked to a thriving business, a thriving planet and a thriving society.

It’s the reason why the IFCO ESG reports have always featured detailed analysis of our progress in these specific areas. Today, ESG targets and reporting go above and beyond the financial targets and reporting conventions of the past. By including comprehensive information on a company’s environmental impact, social practices and governance structure, ESG reports provide a much wider perspective on the overall health and sustainability performance of a company.

Promoting sustainable practices through ESG

As with many industries, sustainability of the fresh grocery supply chain is decided by a complex interplay of many different processes and decisions. It involves taking bold action to lower the environmental footprint of our industry’s entire value chain. It requires a robust governance framework that ensures leaders act responsibly and are ultimately held to account. And it depends on a commitment to foster a diverse workforce and support vulnerable communities in society. Amongst other, equally important, measures.

Given the complexities of adopting an ESG approach, how do you ensure that you cover business, planet and society all at once? You start with an in-depth materiality assessment.

How do you get the materiality assessment right?

The materiality assessment process helps identify and prioritize the issues that most affect business performance, environmental impact and regulatory compliance. To succeed, it needs to incorporate input from a wide range of perspectives across the entire value chain. Indeed, a comprehensive materiality assessment with a focus on sustainability is really the key to any ESG strategy.

When carried out professionally, the insights gained from the materiality assessment can help determine and define your ESG strategy. In turn, this leads to a much more effective allocation of resources and a business approach that respects shareholders, the environment and our society.

To be truly effective, you need to include both internal and external stakeholders in the process. From employees to key customers, from regional executives to global trade organizations. It’s a huge task that I can confirm requires time, effort and resources, as well as a dedicated team of experts in the field. Most importantly, it’s not a one-off event.

Do you have detailed, accurate and consistent data?

Once the material issues have been identified and categorized, you need to agree and set priorities and targets. Crucially, the whole company needs to be behind your targets. You therefore need to embed ESG principles throughout the organization so that each function, department or division can drive sustainable change within their respective areas. Finally, you have to track and measure progress on these issues and publish meaningful reports.

How do we get to meaningful reports? Previously, a lack of standardized criteria for ESG reporting certainly invited criticism. To some extent, such scrutiny served a good purpose. It is leading to greater transparency and more comprehensive ESG reports. By sharing all relevant information, including details on areas where progress may be slow, you present a more accurate picture of the business and avoid misinformation.

As well as being accurate, ESG reports need to be consistent. By using the same reporting criteria and metrics in consecutive reports, for instance, you allow easier tracking of your progress and goals. And you guarantee consistency in your message.

How does digitalization play a role in ESG?

Wherever data comes into play, digital tools can provide a critical boost to ESG-related results, as I recently outlined in my article on digital supply chain twins. Most importantly, we’ve shown that digital tools can deliver actionable insights into the flow and condition of assets and fresh products, bringing greater visibility to complex operations. This leads to more effective use of valuable resources, driving out waste and inefficiencies.

Digitalization is therefore a key enabler for measures that lead to better ESG results, and it can ensure easier tracking and analysis of ESG activities and progress.

When digital tools deliver intelligent insights, ESG reporting can become more transparent. The overriding purpose of an ESG report is to be transparent with employees, the public, regulators and investors about a company’s ESG footprint.

How do you make ESG more transparent?

Today, any business that publishes ESG reports or sustainability claims is rightly placed under greater scrutiny. ESG reports need to be transparent because your company’s activities can impact your customers’ own sustainability goals. This is particularly true regarding Scope 3 emissions – those indirect emissions within your entire value chain.

For instance, our transparent approach provides key, science-backed information about the environmental benefits that our reusable packaging containers (RPCs) deliver. We make our goals and progress more tangible so it’s easier for people to understand the significance of our ESG activities. And we follow global standards to do so.

What are the standards in ESG reporting?

Aligning ESG reports with recognized international standards is crucial for companies to deliver credible, transparent and consistent reporting. The Core Global Reporting Initiative (GRI), for instance, provides clear guidelines for measuring and disclosing ESG performance. While the Sustainability Accounting Standards Board (SASB) offers industry-specific standards for identifying and reporting on material sustainability factors, especially regarding employee health and safety, business ethics, legal and regulatory frameworks and risk management and community relations.

In addition, the United Nations Global Compact (UNGC) corporate responsibility initiative provides useful guiding principles for best practice, especially in the areas of human rights, labor, environment and anti-corruption. And incorporating relevant UN Sustainable Development Goals (SDGs) into ESG reporting ensures that companies consider a wide range of social and environmental impacts. Referring to SDGs also helps prioritize targets and activities that have the most significant positive impact over time.

Finally, committing to the Science Based Targets initiative ensures companies calculate their carbon inventory on a more granular level and therefore set appropriate emissions reduction targets, including on greenhouse gas emissions, air quality, water consumption, wastewater management and environmental impacts. And if you track the results according to the Greenhouse Gas (GHG) Protocol, you can measure and report your progress with even greater consistency and precision.

How do you keep up with evolving standards?

As the legislative environment continues to change, ESG reporting standards will evolve. Essentially, ESG reporting is becoming mandatory and therefore mainstream. In the EU, for instance, the Corporate Sustainability Reporting Directive (CSRD), came into force in January 2023, strengthening and expanding sustainability reporting requirements. It will require large and listed companies to publish regular reports, which will need to detail their social and environmental risks as well as the impact of their business activities on society and the environment. Companies will have to apply the rules for the first time in the 2024 financial year, for reports published in 2025.

And then there is the German Supply Chain Due Diligence Act (LkSG) as well as the UK Modern Slavery Act. In effect, we are seeing due diligence obligations for the upstream stages of production are on the increase. In the US, all public companies are required by the SEC to report material risks to the business, which automatically includes ESG-related issues. More specific ESG rules and regulations differ from state to state in the US.

Is greenwashing a problem for ESG?

There is absolutely no place for misleading, vague or inaccurate claims about the environmental or societal impact of a company’s activities in ESG reports or marketing campaigns. Fortunately, it’s becoming more difficult for companies to inflate ESG activities. The regulatory landscape is now tougher, and lawmakers are clamping down even harder on what they see as "greenwashing" practices.

In the EU, for instance, a new directive on regulating While in the UK the Advertising Standards Authority (ASA), the UK’s independent media regulator, is shining the spotlight on ESG-related marketing. More specifically, it is keeping an eye on the use of vague environmental terms, such as "nature positive". When the ASA decides a campaign is misleading, it can impose considerable fines. And such fines usually go together with very public shaming and reputational damage.

New horizons for ESG practices

Responsible business wasn’t invented with the publication of the UN white paper, Who Cares Wins, but it certainly gave it strong impetus. Over the years, ESG has evolved and become more widespread. It now touches every sector of every industry.

At IFCO, we have a strong sustainability heritage, having started our circular business model in 1992. Now, more than ever, the atmosphere at IFCO is one of incredible responsibility. We are more vocal about ESG issues and have embedded ESG into our strategy and our company culture. The result is that all IFCO employees sustain our circular business model and embrace our commitment to ESG. And this is exactly what we need to succeed.

At the same time, we also understand that we still have work ahead to make real our ambitious ESG commitments set out in our ESG report. As the fresh grocery supply chain is made up of complex, interdependent systems, we can understand it better when we look at it through the ESG lens. We’re living our ESG strategy to ensure a thriving business, a thriving planet and a thriving society.

Our industry must continue to adopt and strengthen ESG strategies. And not just because it’s how you can avoid litigation or financial and reputational damage. But because it’s the right thing to do. And because the title of the UN report in 2004 still rings true today: "Who Cares Wins".

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