ESG reporting is the practice of gathering corporate Environmental, Social and Governance (ESG) data into a comprehensive format that can be disclosed to relevant stakeholders, such as external regulators and potential investors.
Beyond solely financial metrics, modern ESG reporting requires a broad spectrum of data points that illustrate an organisation’s commitment to corporate sustainability.
Moving from a simple regulatory requirement to a fully strategic imperative, ESG reporting is a key element for businesses to attract investment, generate trust in their brand, and drive value and market differentiation. For customers, access to ESG reporting data can help them make informed purchase decisions in an increasingly eco-conscious world.
This shift towards transparent ESG reporting is officiated by regulations such as the CSRD and CSDDD, which underscore global commitments to strengthening sustainability and circularity.
However, this imposes many extra requirements on organisations, raising the question of how ESG reporting can be streamlined and whether innovations such as Digital Product Passports can reduce the ESG reporting burden for organisations.
Exploring the Current ESG Reporting Landscape
Modern ESG reporting took off in the late 1990s with the Global Reporting Initiative (GRI) which provided organisations with a structured way of reporting the ESG aspects of their business.
From this point, ESG reporting has exploded in popularity and importance. There have been several efforts to strengthen, streamline, and increase the scope of ESG reporting and provide standards that these ESG reports can follow.
The 2015 Paris Agreement culminated in a global framework for ESG reporting, with several countries introducing mandatory reporting requirements and disclosure guidelines for companies operating within their borders.
These robust standards ensured that ESG reporting included at least the following types of information:
Environmental Impact
- Carbon emission reduction data
- How the company is promoting circular economy principles
- Supply chain sustainability
- Rate of utilisation of sustainable raw materials and energy
Social Impact
- Human rights and fair labour practices
- Investment in local communities where the company operates
- Health and safety of employees throughout the value chain
Corporate Governance
- Ethics within the organisational structure (anti-bribery etc)
- Diversity, equity, and inclusion
- Executive compensation rates against that of the workforce
Some ESG reporting is mandatory, and some is voluntary. For example, new laws introduced in 2023 such as the CSRD and CSDDD mandate an unprecedented level of ESG reporting for certain categories of organisations.
Not adhering to the strict requirements of these pieces of legislation can incur heavy penalties. These can include monetary fines, exclusion from public procurement procedures and contracts, and even imprisonment for key individuals.
Voluntary reporting standards include the aforementioned GRI and the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). These are guidelines for organisations, not legally required.
However, adherence to the rules of these voluntary standards help to demonstrate an organisation’s commitment to improving corporate sustainability beyond the necessary requirements, helping to attract responsible investors and potentially aiding with market differentiation.
Challenges of ESG Reporting
Whilst the value of ESG reporting is clear for businesses, it’s not without its challenges.
As organisational supply chains become more complex, the amount of external data sources increases exponentially, with data pouring in from suppliers, manufacturers, and various other stakeholders.
This presents a challenge in ensuring data integrity and accuracy – high-quality data is a core requisite of the level of reporting required for compliance with the CSRD, for example. If the provenance of this data is compromised, this can lead to suspicions around the organisation’s green claims and potential accusations of greenwashing.
Additionally, balancing the heightened expectations of a large variety of stakeholders also presents a challenge to ESG reporting. These various stakeholders, from customers to investors, suppliers to regulators, have divergent priorities.
These priorities help to dictate what information organisations need to report on. This increases the burden of ESG reporting exponentially, as organisation’s grapple with the growing demands of these stakeholders. This is compounded by the various pieces of mandatory reporting legislation brought forth within the EU Green Deal. All of these factors add together to increase the ESG reporting burden on organisations.
The EU has recognised this pressure and has started to unveil plans to relieve the burden on businesses in their ESG reporting requirements by removing the reporting requirements for roughly 80% of companies originally regulated by the CSRD.
What are Digital Product Passports (DPPs)?
Digital Product Passports are a platform for sharing critical information about physical products with stakeholders throughout the value chain. This data can span the entire product lifecycle – from manufacture to recycling and disposal – giving a holistic, comprehensive, and valuable overview.
The driving force behind the adoption of Digital Product Passports (DPPs) is the Ecodesign for Sustainable Products Regulation (ESPR) which sets ecodesign requirements for products manufactured or sold within the EU, aiming to create a sustainability standard for physical products.
The ESPR came into force on 18th July 2024. The first working plan for the regulation is set to be released in Spring 2025 and will outline the proposed timeline for delegated acts for priority industries.
The ESPR directly mandates that every product it regulates must come with a Digital Product Passport, accessible by QR code or a similar data carrier. This will help provide access to verifiable information relevant for ESG reporting.
Ways Digital Product Passports Can Reduce the ESG Reporting Burden
The EU has acknowledged that this increased reporting burden is an issue for organisations compelled to comply with the various ESG reporting regulations, prompting them to propose measures such as the Omnibus Package to help cut the red tape.
Digital Product Passports can be used in conjunction with these measures to ensure that the reporting burden is reduced without compromising the quality of ESG reporting.
1. Data & Legislative Alignment
Many of the new pieces of legislation under the EU Green Deal overlap in their scope. For example, the preparation necessary for compliance with the ESPR’s DPP mandate requires collecting a wide breadth of data, which aligns heavily with the requirements of the CSRD.
DPP implementation requires a comprehensive review of organisational data management processes, measuring and improving data quality internally and throughout the supply chain. The ESPR states that the data within DPPs must be transparent and verifiable, forcing organisations to review the trustworthiness of their external partner data.
This extensive collection of quality data and improvement of data management practices can help with the more challenging aspects of reporting mandated by the CSRD, such as the disclosure of granular and verifiable sustainability data with both forward-looking and retrospective qualities.
2. Exporting Sustainability Data
When this data has been collected, DPPs make it technically possible to export product-level sustainability data into a specific format for reporting.
This could be incorporated into a standardised digital report to be used for compliance across the several ESG regulations that an organisation might be beholden to, with the DPP acting as a single source of verifiable data.
Having this level of cohesion across an organisation’s ESG reporting can help them avoid double spending on ESG reporting tools and duplicating efforts by satisfying regulatory requirements simultaneously. This will be especially relevant for SMEs likely to feel the sting of additional ESG reporting requirements more acutely.
3. Utilising Existing Standards
There are several standards that organisations already utilise for achieving product compliance, including Lifecycle Assessments (LCAs), various ISO standards, and Environmental Product Declarations (EPDs).
It’s expected that the European Commission will encourage the use of existing standards, certifications, and more within Digital Product Passports.
This would reduce the administrative burden on organisations by allowing them to utilise the same standards they’ve already been working to, removing the need to learn an entirely new set of standards and implement them across all affected data sets.
At the time of writing (March 2025), CENELEC are working on a set of standards for the data contained within the majority of DPPs which line up with existing standards such as LCAs and ISO/IEC 15459, with the specifics for Battery Passport data requirements already outlined.
Conclusion
ESG Reporting continues to grow drastically in importance, underpinned by evolving regulations that demand greater detail and transparency from organisations in order to meet the threshold for compliance.
While this helps to boost overall sustainability and circularity, it does place an increased administrative and technical burden on organisations as they struggle to gather quality data to meet the compliance demands.
Alongside specific measures to relieve the compliance demands on organisations, DPPs can help to relieve the ESG reporting burden by providing a reliable singular source of data, making it easier to standardise ESG reporting, and aligning to existing standards.