83 What is ESG reporting?

Because the triple bottom line (TBL) concept does not provide specific standards for companies to report, there have been multiple attempts to “fill in the blanks” in the theory, to make TBL reporting easily comparable between companies and more like labels for food in the United States.

The first one we will consider is the GRI, or Global Reporting Initiative. These standards aim to provide a comprehensive way for companies to report on “the economy, the environment, and people” in a narrative-based framework. You can explore the standards here. An example GRI report, for General Motors, is here. The categories are shown on the left hand side, and GM’s responses are shown on the right hand side. For instance, under the category “Management of water discharge-related impacts”, GM notes “General Motors maintains an environmental performance criteria document on water pollution control (EPC-003). Within this document, minimum concentration-based performance requirements are defined for wastewater discharge to surface water and for wastewater discharges to external wastewater systems. Where local permit limits are more stringent, those supersede the GM requirements. Where no permit limit is provided, the performance requirements are used.” Note the many links to outside documents–completing a comprehensive GRI report is a daunting task.

Next, the Sustainability Accounting Standards Board, or SASB, provides a more data-driven or numerical approach to the same problem. You can view Nike’s SASB report here. The report quantifies, for example, the percentage of certain supplier facilities “in compliance with wastewater discharge permits and/or contractual agreement” (98%), or the “corrective action rate for suppliers’ labor code of conduct audits” (13%). In theory, one could draw an SASB report on several companies, compare these numbers, and use them as a basis for making investment or purchasing decisions between the companies.

Finally, Morningstar calculates an “ESG Risk Rating” for a number of companies. This Risk Rating is a single number that attempts to quantify the business risks related to ESG issues for comparability between companies. You can search these ratings here. For instance, searching for “Exxon Mobile” shows an ESG Risk Rating of 36.5, or High Risk, because of the potential impact of Exxon’s products on the environment, among other issues. The report ranks Exxon out of all oil and gas producers in the database (Exxon ranks 60 out of 256), and against all companies (12,291 out of 14,899). In contrast, a search for Nike reveals a risk rating of 17.0, a Low Risk, yet one that is only near the middle of other companies in the Textiles & Apparel group (85 out of 182).