What is ESG Reporting: Importance, Regulations and Best Practices

What Is ESG Reporting? Importance, Regulations, and Best Practices explains how companies measure and disclose environmental, social and governance performance, the evolving regulatory landscape, and practical steps to improve transparency. This guide breaks down key frameworks and metrics and highlights common pitfalls. Read on to start building a robust ESG report.

What is ESG reporting

ESG reporting is about explaining how a company performs across three key areas:

• Environmental: This looks at a company’s impact on the natural world – including things like greenhouse gas emissions, carbon footprint, pollution, water use, biodiversity, waste handling, energy use, and efforts to address climate change.

• Social: This covers how the company affects people inside and outside the business. It includes topics like diversity and inclusion, labor practices, human rights, community relationships, employee well‑being, ethical supply chains, and product safety.

• Governance: This is about how the company is run. It includes leadership and board structure, executive pay, accountability, ethics and risk management, data privacy, and transparency.

Why it matters: ESG reports give stakeholders – investors, customers, employees, and regulators – a clearer picture of non‑financial risks and opportunities. They’re like a health check that highlights factors beyond the balance sheet that can affect a company’s long‑term success.

Some common examples of ESG data:

• Carbon emissions and energy use

• Waste and water management

• Employee diversity and workplace conditions

• Board diversity and executive compensation

• Human rights practices in the supply chain

In short, ESG reporting adds color to the numbers by showing how a company’s actions impact people, the planet, and how it’s run.

Why ESG reporting matters

ESG reporting isn’t just a box-ticking exercise. When done well, it provides tangible business benefits that go well beyond compliance. Here are some of the key advantages:

• Risk management: ESG reporting helps organizations identify environmental, social, or governance risks early on, before they become costly problems. It also equips teams with the data needed to address those risks effectively.

• Investor confidence: Many investors now prioritize companies with strong ESG credentials. Clear, transparent reporting can make a business more attractive to capital providers and improve financing terms.

• Cost savings: Collecting ESG data often uncovers operational waste. For example, tracking energy usage, supply-chain practices, or labor issues can reveal inefficiencies that, once fixed, reduce expenses.

• Stakeholder trust: Being honest about ESG performance builds credibility with customers, employees, and local communities. Open disclosures demonstrate accountability and can boost loyalty and brand reputation.

• Regulatory compliance: More governments and regulators are requiring companies to disclose ESG information. Reporting proactively helps firms stay ahead of evolving legal requirements.

• Innovation driver: ESG initiatives often spark new ideas and ways of working. When teams focus on sustainability, they frequently develop innovative products and processes that align with societal values—and create new growth opportunities.

• Competitive advantage: Voluntary reporting allows companies to differentiate themselves from peers. By sharing ESG progress proactively, firms can enhance their appeal to investors and the market more broadly.

• Beyond the environment: Good ESG reporting covers governance issues—board oversight, executive pay, data security, ethical practices—that matter for credibility and long-term risk management.

Regulatory landscape for ESG reporting

Across the globe, the rules for ESG reporting are changing. What was once mostly voluntary disclosure is increasingly becoming mandatory and standardized, particularly in major jurisdictions like the European Union and the United States.

European Union regulations

At the heart of the EU’s rules for ESG reporting is the Corporate Sustainability Reporting Directive (CSRD). This is the most detailed EU framework to date for how companies must disclose environmental, social and governance information.

• Who must report? The CSRD widens the net considerably. While the old Non‑Financial Reporting Directive covered roughly 12,000 firms, the CSRD brings some 50,000 companies into scope. That includes large firms, all listed companies (except micro‑enterprises), and even some non‑EU companies doing business in the EU.

• What the CSRD requires is specific and regular. Covered companies must publish detailed, audited annual reports on their ESG impacts. These reports must follow the European Sustainability Reporting Standards (ESRS), which set a common format so disclosures are comparable across companies.

• Reporting under the CSRD also uses a “double materiality” approach. Companies must assess both how their activities affect people and the planet (impact materiality) and how environmental, social and governance issues affect the company’s own financial position (financial materiality).

The CSRD’s first reporting wave got underway in January 2025. That included firms that were already reporting under the old rules—large listed companies, and banks and insurers with more than 500 employees.

Finally, the EU’s Taxonomy Regulation – the rulebook that defines what counts as environmentally sustainable economic activity – expands its scope by July 2025 to cover more sectors, such as agriculture, manufacturing and ICT.

United Kingdom regulations

Since April 2022, all companies caught by the ESG rules must include a sustainability statement in their annual strategic report (or in their energy and carbon report). It’s no longer an optional extra for corporates who want to show they care; it’s now part of the official record.

So what goes in that statement? You should be explaining what environmental risks the company faces. Who governs those risks? What environmental goals have you set? What key performance indicators do you use to track progress? How do those risks feed into enterprise risk management? In other words: identify the risks, show how you manage them, and measure the results.

Two long-standing pieces of law underpin these expectations: the Companies Act 2006 and the UK Corporate Governance Code. They require directors’ reports and set governance standards that now cover ESG issues. Alongside those, the Streamlined Energy and Carbon Reporting (SECR) framework forces relevant organisations to disclose their energy use and carbon emissions.

To bring more consistency, the government has introduced the UK Sustainability Reporting Standards (UK SRS). The standards aim to align reporting with international practice so statements are comparable and reliable. Guidance such as the 2025-26 UK Sustainability Reporting Guidance increasingly brings UK public sector reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD). That is, it emphasizes Scope 1 and 2 greenhouse gas emissions and recommends a materiality-based approach for Scope 3 emissions.

On 25 June 2025 the UK Government launched major consultations to tighten sustainability reporting and climate disclosure. The stated goal is to give ESG disclosures the same level of rigour and scrutiny as financial accounts.

And finally, companies that exceed certain thresholds must comply with these reporting rules – or clearly explain why they do not. The result? Clearer, more accountable environmental reporting across the board.

United States regulations

At the federal level, the primary force shaping ESG reporting for public companies is the SEC. It has proposed and finalized climate-disclosure rules that require firms to clearly spell out the climate-related risks that could affect their operations or financial condition. The rules also require companies to report on the strategies and metrics they use to reduce greenhouse gas (GHG) emissions – and to break those emissions down by Scope 1, Scope 2, and Scope 3.

As of 2025, companies are working to implement these SEC requirements, but the rollout remains uncertain. The rules face legal and political challenges that could change enforcement timelines or how the requirements are applied.

States are acting as well, with California leading the way:

• SB-253 (Climate Corporate Data Accountability Act) requires companies with more than $1 billion in revenue to disclose GHG emissions – Scopes 1 and 2 beginning in 2026, and Scope 3 starting in 2027.

• SB-261 (Climate-Related Financial Risk) asks companies with over $500 million in revenue to report climate-related financial risks to the California Air Resources Board starting in 2026.

Beyond these specific mandates, ESG reporting in the U.S. remains mostly voluntary, which contrasts with jurisdictions such as the European Union where disclosure regimes tend to be more prescriptive.

Global standards and initiatives

There are several global frameworks and initiatives that help companies measure, disclose and manage their sustainability impacts. Some set mandatory rules; others offer voluntary guidance. Here’s a clear rundown of the main ones and what they do.

• European Union – CSRD & ESRS: The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) create mandatory reporting requirements for many companies in the EU. They set detailed rules on what firms must disclose about sustainability performance.

• Global Reporting Initiative (GRI): GRI provides a widely used, voluntary set of standards that cover a broad range of environmental, social and governance topics. Organizations use GRI to improve transparency and explain their impacts on people and the planet.

• Sustainability Accounting Standards Board (SASB): SASB issues industry-specific guidance that zeroes in on sustainability issues likely to affect financial performance. Investors and companies use it to focus on financially material risks and opportunities.

• Task Force on Climate-related Financial Disclosures (TCFD): TCFD concentrates specifically on climate-related risks and opportunities, helping organizations disclose how climate issues affect strategy, risk management and financial planning.

• Science Based Targets initiative (SBTi): SBTi helps companies set greenhouse gas reduction targets that align with the latest climate science and global goals. It’s about making emission-reduction plans both credible and measurable.

• United Nations Global Compact (UNGC): The UNGC is a large voluntary initiative where companies commit to ten principles covering human rights, labor, the environment and anti-corruption. It’s a common starting point for corporate sustainability commitments.

• ISO 26000: Rather than a certifiable standard, ISO 26000 offers guidance on social responsibility across governance, environment, labor practices and community involvement. It helps organizations operate ethically and responsibly.

• China – CSRC pilot (2025): China’s Securities Regulatory Commission launched a 2025 pilot requiring ESG disclosure by A-share-listed companies, with an initial focus on mandatory environmental metrics.

Each of these frameworks serves a different purpose: some are legally binding, others guide voluntary transparency, and some target climate or industry-specific issues. Organizations often use several together to meet regulatory demands, investor expectations and their own sustainability goals.

ESG reporting frameworks

ESG reporting is built on a set of well-established frameworks and standards that guide organizations in explaining their sustainability and social performance in a consistent way. Here are the main players:

• Global Reporting Initiative (GRI): The oldest and most comprehensive. Its universal standards focus on the material impacts an organization has across the economy, environment, and society.

• Sustainability Accounting Standards Board (SASB): Industry-specific standards that highlight sustainability issues likely to be financially material for companies in particular sectors.

• Task Force on Climate-related Financial Disclosures (TCFD): Focuses specifically on climate-related financial risks and opportunities, helping organizations disclose how climate affects their strategy and financial planning.

• International Sustainability Standards Board (ISSB): Through the IFRS Sustainability Disclosure Standards (IFRS SDS), it aims to create a common baseline for ESG disclosures worldwide, promoting greater consistency across markets.

• Greenhouse Gas Protocol: Offers practical, detailed guidance for measuring and reporting greenhouse gas emissions, including how to count and categorize emissions.

• Corporate Sustainability Reporting Directive (CSRD): A mandatory EU directive requiring companies in the European Union to report on sustainability matters. See related EU regulations for the full legal context.

In short: frameworks tend to provide broad guidance and principles for identifying and reporting ESG issues, while standards are more specific – laying out exact metrics and reporting requirements.

Key ESG metrics and disclosures

When companies report on ESG, they tend to focus on a handful of core metrics across three areas:

• Environmental – Track carbon emissions (Scope 1, 2, and 3), energy consumption, water use, waste management, and impacts on biodiversity and land use.

• Social – Monitor employee turnover, health and safety performance, diversity, equity and inclusion (DE&I), as well as labor rights and community engagement.

• Governance – Measure board composition and diversity, executive pay and incentives, ethical conduct and compliance, risk management, and shareholder rights and transparency.

To keep reporting consistent and reliable, many organizations follow established frameworks and standards such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD).

Challenges in ESG reporting

There’s no single ESG reporting standard. As a result, companies often have to juggle multiple frameworks at once – like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) – which makes reporting uneven and time-consuming.

Regulations are tightening worldwide, but laws and timelines keep shifting. That constant change makes it hard to stay compliant across jurisdictions and build a steady, repeatable process.

Collecting reliable ESG data is another major hurdle. Teams work in different formats, some info is missing, and non-financial metrics don’t fit neatly into traditional financial systems. These gaps make it tough to produce consistent, auditable data.

It’s also hard to pin down and measure the risks and outcomes tied to ESG issues. Quantifying environmental harm or social impact requires judgment calls and new measurement approaches, so results can vary widely from one company to the next.

At the same time, stakeholders – investors, customers, employees – want more disclosure even where legal rules remain unclear (especially in the U.S.). That pressure forces companies to share more info without always knowing what they must or should disclose.

Finally, reporting is only the first step. Plenty of organizations can produce dashboards and scorecards but struggle to turn those numbers into better strategies and real-world improvements. Collecting data is necessary; changing operations and outcomes is where the real work begins.

Best practices for ESG reporting

Who will be reading your ESG report? Or, more importantly, who will be affected by it? It’s not just your shareholders; customers, employees, suppliers, regulators, NGOs and local communities all have a stake.

Think beyond the obvious and start by mapping out those groups to ensure your report answers the questions they actually care about.

To keep your work on track, rely on trusted frameworks. The Global Reporting Initiative (GRI) or the Task Force on Climate-related Financial Disclosures (TCFD), for example, help you decide what’s important and how to present it clearly.

Narrow your focus with a materiality assessment. This process – conversations, surveys and data reviews – highlights the environmental, social and governance topics that matter most to your business and stakeholders, so you don’t try to do everything at once.

Make data collection efficient. Automation and other digital tools speed up gathering and analysing metrics, reduce errors, and free your team for interpretation and action.

Publish ESG information in formats people can actually use. That might be a standalone sustainability report, a dedicated section of your annual report, or accessible online dashboards – whatever makes the findings clear and easy to find.

Set measurable, realistic targets and tie them to broader efforts where possible (for example, goals aligned with the Paris Agreement). Then report progress publicly on an annual basis so stakeholders can see results over time.

Keep on top of regulations. Regional and industry-specific rules change often, so keep an eye on requirements and make sure your reporting ticks all the boxes.

Refresh your approach regularly. Update your policies, data-collection methods and the reporting frameworks you use to reflect new risks, opportunities and stakeholder expectations.

Finally, increase trust by getting external checks. Limited assurance or third‑party audits of your ESG data strengthen credibility and make your disclosures more reliable.

Integrating ESG reporting with business strategy

Turn ESG reporting into a strategic asset by making it part of what your company already cares about: your mission and long-term goals. To do that, you’ll need to:

• Start by pinpointing the ESG issues that matter most to your business. Look at your operations, your industry, and what stakeholders—customers, employees, investors, and local communities—expect from you.

• Set clear, measurable targets and track them with specific KPIs. If you don’t measure it, you can’t improve it.

• Bring ESG into everyday decisions: investments, product development, sourcing, and supplier choices should all reflect those priorities.

• Work with investors, employees, customers, and community groups so your initiatives match their expectations and gain broader support.

• Use digital tools to keep real-time tabs on energy use, emissions, diversity metrics, and supply-chain compliance. Data makes ESG actionable.

• Make sure leaders visibly back ESG. Tie relevant metrics to executive incentives and build a culture that rewards sustainable choices.

• Prioritize reporting on the ESG issues that pose the biggest risks or offer the greatest impact for your organization, and disclose results using recognized frameworks.

Do all these things, and ESG won’t be an add-on—it’ll be part of how you run the company.

The future of ESG reporting

Regulation is tightening worldwide. Governments in the EU, UK, Canada and parts of Asia are rolling out tougher ESG disclosure rules, forcing companies to be clearer about their social and environmental impacts.

Meanwhile, bodies like the International Sustainability Standards Board (ISSB) are trying to align reporting rules across borders. The goal is simple: make disclosures consistent so investors and stakeholders can compare companies on a level playing field.

Technology is changing the game. AI, big data and blockchain are helping companies collect cleaner data, track performance in near real time, and boost trust in reported figures. That means fewer guesses and more verifiable evidence.

Climate reporting is moving from voluntary to expected. Pressure from investors and regulators has pushed carbon emissions and climate-risk disclosures toward the mainstream. Firms now have to show they understand and are managing these risks.

Materiality matters more than ever. Companies are focusing on the ESG factors that actually affect their business – the risks and opportunities that will influence strategy, operations and value. ESG is moving from a side project to a board-level concern.

Disclosures are getting more industry-specific. Frameworks such as SASB help tailor reporting to sector-relevant issues, so investors can better judge sustainability risks and returns by industry rather than by a one-size-fits-all checklist.

There’s a clear push for convergence. Many voices want a single, reliable set of standards to reduce complexity and improve comparability across markets.

Boards are waking up to ESG’s broader role. Directors increasingly see these issues as central to corporate purpose, accountability and long-term resilience – not just an add-on to financial reporting.

And finally, investor demand remains a major driver. As sustainable investing grows, capital flows and corporate behavior are shifting. Companies that disclose clearly and act responsibly attract attention – and investment – while those that don’t risk being left behind.