How to Prepare for ESG Reporting Requirements

A guide to help your company assess its ESG performance, choose the right software, and prepare to comply with the CSRD and SEC climate regulations

ESG reporting is important to help companies stay competitive, attract investors, and meet stakeholder expectations. ESG reporting refers to the disclosure of information on the environmental, social, and governance aspects of a company's performance, such as its carbon footprint, diversity and inclusion, human rights, and board composition.

However, ESG reporting is not a one-size-fits-all process. Different regions, industries, and standards have different requirements and expectations for ESG reporting. Moreover, the regulatory landscape is constantly evolving, with new rules and frameworks emerging to address the growing demand for ESG transparency and accountability. For example, the European Union has recently adopted the Corporate Sustainability Reporting Directive (CSRD), which will require certain public and private companies to report on their ESG performance in a consistent and comparable way. Similarly, the U.S. Securities and Exchange Commission (SEC) announced recently adopted new climate-related disclosure requirements for public companies.

How can you prepare for ESG reporting requirements to ensure accuracy, reliability, and transparency? Discover practical tips and insights on how to conduct an ESG gap assessment, choose the right ESG software, and prepare to comply with the CSRD and SEC Climate Rules reporting regulations.

Conduct an ESG Gap Assessment

An ESG gap assessment is the process of identifying and evaluating the strengths and weaknesses of your current ESG reporting practices. It helps you to understand where your company stands in terms of ESG performance, how your company compares to peers and competitors, and what your company may need to improve or change to meet the stakeholder and regulator expectations.

An ESG gap assessment can also generate insights and recommend next steps as you work to align your company’s ESG reporting with the most relevant voluntary and mandatory standards and frameworks, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD), the United Nations Sustainable Development Goals (SDGs), CSRD, SEC Climate Rules, and many others.

To conduct an ESG gap assessment, consider following these steps:

Define your ESG reporting objectives and scope.

• What are the main goals and benefits of your ESG reporting?
• Who are your target audiences and what are their information needs and preferences?
• What are the material ESG topics and indicators for your business and industry?
• What are the geographic and sectoral boundaries of your ESG reporting?

Review your existing ESG data and processes.

• What are the sources and methods of collecting, verifying, and analyzing your ESG data?
• How reliable, consistent, and timely is your ESG data?
• How do you manage and report your ESG data?
• What are the gaps and challenges in your ESG data and processes?

Benchmark your ESG reporting against best practices and standards.

• How does your ESG reporting compare to the expectations and requirements of your stakeholders and regulators?
• How does your ESG reporting align with the most relevant and widely used standards and frameworks?
• What are the strengths and weaknesses of your ESG reporting in terms of its content, data management, format, and quality?

Prioritize and implement your ESG reporting improvements.

• Based on your ESG gap assessment, what are the most urgent and important actions that you need to take to enhance your ESG reporting?
• How will you allocate your resources and responsibilities for implementing your ESG reporting improvements?
• How will you monitor and measure the progress and impact of your ESG reporting improvements?

Choose the Right ESG Software

ESG software helps manage and report your company’s ESG data in a more efficient and effective way. With ESG software, you can automate and streamline ESG data collection, analysis, and assurance, as well as generate and publish ESG reports in various formats and across platforms. ESG software can also help you integrate your ESG, financial, and operational data, as well as track and communicate ESG performance and impact.

However, not all ESG software is created equal. When choosing ESG software, consider the following:

• Functionality and features. Does the ESG software offer the functionalities and features that you need for your ESG reporting, such as data integration, data validation, data analysis, data visualization, report generation, report dissemination, and audit trails for assurance?
• Compatibility and interoperability. Does the ESG software support the data formats and standards that you use for ESG reporting?
• Scalability and flexibility. Does the ESG software have multiple modules that accommodate wherever you are in your ESG reporting journey?
• Usability and accessibility. Does the ESG software have a user-friendly and intuitive interface, design, and multiple layers of security?
• Cost and value. Does the ESG software offer a clear, transparent pricing and licensing model and support your value proposition?

Prepare for the CSRD and SEC Climate Reporting Regulations

The CSRD and SEC Climate Rules reporting regulations will impact many companies globally.

The CSRD is a directive that requires public and private companies in the EU to report on their ESG performance in a consistent and comparable way, using a set of mandatory and common ESG reporting standards developed by the European Financial Reporting Advisory Group (EFRAG). The CSRD also requires the assurance of ESG reports by an independent auditor, as well as the digitalization of ESG reports using the European Single Electronic Format (ESEF). Companies already subject to the Non-Financial Reporting Directive (NFRD) will need to publish their first CSRD-compliant annual report in 2025, based on the 2024 financial year.

The SEC released final rules requiring domestic and foreign companies publicly listed in the U.S. to include additional climate-related disclosures in their annual reports and audited financial statements, with the stated goal of providing investors with more consistent and reliable information about the impacts of climate-related risks on a company’s business strategy, results of operations, and financial condition. While the rules are expected to phase in from FY 2025 to FY 2033, they are currently being challenged in court and the SEC has paused the rules until the litigation concludes. Nasdaq provides more information about navigating the SEC’s climate-related disclosure rules here.

To prepare your company for the CSRD and SEC Climate Rules reporting regulations and navigate the evolving regulatory landscape, consider the following best practices:

• Understand regulatory requirements. Gain an understanding of the evolving landscape of ESG regulations and familiarize yourself with climate-related disclosures and mandatory requirements that apply to your company. Plus, consider whether your stakeholders will continue to expect voluntary reporting. There are tools like Nasdaq Sustainable Lens™, which leverages generative AI to give you impactful information in minutes that can help.
• Conduct a gap assessment. A gap assessment provides valuable insights into your company’s areas of disclosure compliance and potential gaps. Armed with the topics defined through your materiality assessment, a gap assessment compares your company’s current disclosures against the required regulatory standards. This can be an extremely laborious and data-driven activity, one well suited for technology and AI.   For an initial gap analysis, consider a free assessment from Nasdaq against the SEC Climate Rules, CSRD, or a set of your peers.
• Establish data collection mechanisms. Efficient data collection processes can help save time, reduce reporting errors, and ensure the accuracy of ESG disclosures. Implement automated data collection tools like Nasdaq Metrio™ to streamline how you gather ESG data from internal and external sources and ensure those tools have audit trails with date and time stamps and a reference library for supporting documentation.
• Engage stakeholders. Data may sit across multiple departments, teams, and jurisdictions. Collaboration with internal and external stakeholders is paramount to understanding their ESG expectations and integrating their feedback into your reporting. Companies with strong stakeholder engagement around ESG issues may be more likely to build trust and enhance reputation among their investors.
• Develop a governance and risk management strategy. ESG-related risks may impact your business continuity, reputation, and long-term value creation. Integrating ESG risks into your overall risk management strategy can help identify and manage any material climate-related impacts. The board and management can play key roles in overseeing the mitigation strategy effectiveness and recommending opportunities for innovation and growth.
• Implement ESG performance metrics. Companies that track and disclose ESG performance metrics may show improved operational efficiency and stronger risk management capabilities. Consider defining and tracking measurable KPIs related to ESG goals.
• Conduct peer benchmarking. Proactively identify gaps in your company’s disclosures against regulatory standards and find companies already in compliance on those metrics by reviewing your peers’ ESG and sustainability reports. Peer benchmarking can provide insight and help align your company’s disclosures with industry standards and best practices, as well as provide tangible examples from similar companies to model your own company’s disclosures.
• Enhance transparency and disclosure. Ensure that your ESG efforts can be communicated transparently in your annual reports. Transparent ESG reporting helps build investor confidence and loyalty and may lead to increased market competitiveness.
• Utilize technology. Technology enables companies to monitor ESG performance, facilitate timely decision-making, and align strategy with corporate objectives. Moreover, companies use technology to mitigate data quality risks, such as non-compliance, litigation, and stakeholder dissatisfaction. Leveraging end-to-end sustainability data management and reporting software like Nasdaq Metrio can help streamline your data collection, reporting, assurance, and disclosure processes.
• Seek continuous improvement. A commitment to continuous improvement in ESG reporting can help improve brand reputation and stakeholder trust. Regularly review and enhance your ESG reporting practices based on feedback, emerging trends, and industry benchmarks to drive ongoing improvement and innovation.
• Assess materiality of ESG factors. Conduct a materiality assessment to identify ESG factors that have a significant impact on your business, strategy, operations, and financial performance. Understanding these factors at the beginning can help accelerate your efforts.

ESG reporting is a vital and valuable practice for companies that want to demonstrate their ESG performance and impact and comply with reporting requirements. However, ESG reporting is not a simple or static process. It requires a continuous and proactive effort to assess, improve, and communicate in a way that meets stakeholder and regulator expectations. These insights and best practices may help your company prepare for ESG requirements and ensure your reporting is accurate, reliable, and relevant.