Environmental, Social & Governance Reporting (AQA A Level Business): Revision Note

What is environmental, social and governance reporting?

• Environmental, Social and Governance (ESG) reporting is the process by which a business discloses information about its environmental impact, social practices and governance structures, alongside its usual financial reporting

Elements of ESG reporting

Environmental

• Covers a business's impact on the natural environment

• Such as emissions, resource use and waste

Example

In 2025, Marks & Spencer disclosed around 385 million kg of CO₂e emissions and outlined progress on zero operational waste to landfill, alongside a target to cut emissions 55% by 2030

Social

• Covers how a business treats people

• Including employees, customers, suppliers and the communities it operates in

Example

UK companies with 250+ employees must publish an annual gender pay gap report

In 2024/25, advertising group WPP reported its gender pay gap had narrowed from 18.1% to 17.8% year on year.

Governance

• Covers how a business is run

• Including the make-up of its board of directors, executive pay and how decisions are made and monitored

Example

AstraZeneca reported that its CEO was paid around 176 times more than the average employee in 2025.

This is a governance disclosure UK companies must make each year, giving shareholders a clear way to compare executive pay with pay across the rest of the business

The purpose and value of ESG reporting

• It gives investors, customers and other stakeholders a more complete picture of a business's overall performance, beyond financial results alone

• It helps identify risks that might not appear in traditional financial statements, such as environmental liabilities or poor governance practices

• It improves transparency and accountability, making it harder for a business to hide poor practice

• It aids comparison between businesses, helping investors and customers choose between competitors based on more than just price or profit

• It can improve access to finance, as many investors now favour or require strong ESG performance before investing

• ESG reporting is increasingly required or expected by regulators and stock exchanges, so it is becoming a standard part of how larger businesses operate

Why improve environmental, social and governance performance?

• It reduces the risk of legal action or fines

  • ESG standards are often ahead of future laws, so acting early avoids being caught out later

Example

Since 2021, UK government departments have required suppliers bidding for contracts worth over £5 million a year to submit a Carbon Reduction Plan

Businesses already managing their ESG performance well find this much easier to meet

• It improves reputation and brand image

  • Customers, investors and employees are more likely to trust and support a business seen as responsible

• It can improve access to finance and lower borrowing costs

  • Many banks and investors now prefer, or require, good ESG performance before lending or investing

• It reduces long-term risks

  • For example, using fewer scarce resources or keeping workers safer means fewer problems down the line

Example

Mondelez invests in its cocoa farming communities partly to protect its own long-term cocoa supply, which is increasingly threatened by climate change

• It can improve staff recruitment, motivation and retention

  • Employees increasingly want to work somewhere they feel good about

• It strengthens relationships with a wide range of stakeholders

  • This includes regulators, communities and suppliers, not just customers and shareholders

• It can create a competitive advantage

  • Standing out from rivals with weaker ESG performance can win over customers and investors

Difficulties of improving ESG performance

The cost of measuring and reporting data

• It takes time and money to collect accurate information from every part of a business, especially a large one with many sites

  • E.g. A large manufacturer may need to check emissions figures separately at each of its factories around the world

A lack of standardised measures

• There is no single agreed way to measure ESG performance

• It can therefore be hard to know if a business's figures are accurate or fair to compare with others

  • E.g. A 2023 investigation found that over 90% of carbon credits sold by Verra did little real good for the climate, even though companies were using them to back up their environmental claims

Balancing short-term cost against long-term benefit

• Improving ESG performance often costs money now, which is at odds with many shareholders who want profits straight away

Supply chain complexity

• It is difficult to check that every supplier, especially those overseas, is meeting the same standards

Risk of greenwashing or bluewashing accusations

• If a business's claims turn out to be exaggerated, this can badly damage trust

Slow progress on some governance measures

• Targets like getting more diversity into senior leadership can take a long time to achieve, even with real effort

  • E.g. Even as UK boards of directors overall hit their gender diversity targets, the number of women in senior executive roles in many of the largest companies actually fell by 11% between 2022 and 2024

Measures of environmental, social and governance performance

• Businesses use specific, measurable indicators to track and report ESG performance, allowing comparison over time and between businesses

• A company's annual ESG report might show a reduction in workplace injuries over the previous year, a fall in carbon emissions per unit produced, and an increase in the proportion of women on its board

• Stakeholders can use these measures to track its progress across all three ESG areas