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The ABCs of ESG: Defining Top ESG Reporting Terms

As we dive into the findings from our recent study of ESG (environmental, social and governance) reporting habits of the top North American automotive suppliers (according to Automotive News’ most recent Top Suppliers Listing), we thought it would be helpful to review some of the most popular terms and reporting standards.

To start, let’s answer the basic question: What is an ESG report?

An ESG report is a report published by a company or organization about its environmental, social and governance impacts. As company stakeholders are requesting that companies share more about their strategies and goals in these areas, an ESG report serves as a tool companies can use to be transparent about the risks and opportunities they face. 

Another common term you often hear in conjunction with ESG is CSR (corporate social responsibility), but what’s the difference between the two?

CSR is typically viewed as the qualitative side of a report, as it gives context on the overarching social, environmental and economic concerns, and gives stakeholders insight into company values. On the other hand, ESG focuses more on the quantitative results, as an ESG approach makes a business’ efforts measurable.

Types of ESG Reports

While many of these reports include similar types of data and information, you’ll find companies refer to their reports differently.  The two most popular types of ESG reports for top automotive suppliers are a sustainability report and an integrated report.

So, what’s the difference?

Sustainability reports are generally written for a broad stakeholder base and communicate the company’s impacts on the economy, environment and social issues.

An integrated report focuses more on financial capital and how the organization creates value and is a combination of a supplier’s traditional annual report and an ESG report.

ESG Reporting Standards

To report their ESG efforts and progress, companies typically incorporate at least one, but most commonly, multiple reporting frameworks / standards when developing their reports.

While a few of the top 25 North American automotive OEM suppliers have created their own company-specific framework for reporting, most of the top North American automotive suppliers use one (or more) of these common ESG standards:

• GRI (Global Reporting Initiative): The most popular reporting standard, used by 35% of the top North American auto supplier reports, GRI is an independent, international organization that helps business and other organizations take responsibility for their impacts by providing them with a global common language to communicate those impacts, called the GRI Standards.

• UN Global Compact & SDG (Sustainable Development Goals): Implemented in 30% of the reports we researched, the 17 SDGs were developed by the United Nations Department of Economic and Social Affairs as a result of the 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015. When implemented, the 17 SDGs aim to improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.

• TCFD (Task Force on Climate-related Financial Disclosures): The Financial Stability Board established the TCFD, which is used by 18% of the top auto suppliers, to develop recommendations for more effective climate-related disclosures. The TCFD works to promote more informed investment, credit and insurance underwriting decisions, and, in turn, enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks.

• SASB (Sustainability Accounting Standards Board): Fifteen percent of the auto suppliers used the SASB Standards, which guide the disclosure of financial material sustainability information by companies to their investors. Available for 77 industries, the Standards identify the subset of ESG issues most relevant to financial performance in each industry. In July 2020, the Account Standards Board and GRI announced a collaborative workplan to show how companies can use both sets of standards together.

As we identified  in our previous ESG insights blog post, 67% of top auto supplier reports clearly identified the specific ESG topics that are most important to the company and their reporting efforts.

This list of material topics is typically developed through a materiality assessment, which is a process designed to help a company define and understand which sustainability topics are most important to the company and its stakeholders.  The materiality assessment not only helps a company review its risk factors and business processes, but it also helps a company to better understand and meet the expectations of its stakeholders.

To complete a comprehensive assessment, a company needs to conduct a survey of its stakeholders both inside and outside of the company. The results will determine the company’s top ESG issues based upon survey responses and rankings. From this point, a company can determine which topics should be represented in its report. The results are sometimes shown visually in its report in the form of a materiality matrix.

Top ESG Topics for Auto Suppliers

Now, you might be wondering what topics are typically covered. And while there are hundreds we could list here and the mix of topics varies from report to report, here’s a list of some of the topics most frequently found in the top automotive suppliers ESG reports.

(Note: We’ll identify the most common topic areas in an upcoming blog post.)

If you’d like to learn more about automotive supplier ESG reporting or obtain insights on how your company’s next ESG communications can be enhanced, keep following this blog for future posts.

And if you have a specific question, you can ask us here: bianchipr@bianchipr.com.

You might also be interested in:

• Five Key Insights from the Top Automotive Suppliers’ ESG Reports
• Three Reasons ESG Communications Are Crucial for Automotive & Vehicle Technology Suppliers
• Automotive Technology PR