This guide helps credit analysts treat corporate sustainability reports as additive to traditional credit assessment. The reports provide context on a company’s sustainable business strategy, risk management, and medium- to long-term viability, including its capacity to repay obligations.

This guide summarizes the key insights from the webinar ‘Demystifying corporate sustainability reports’ where expert Catherine Bealin discussed treating sustainability reports as material and integrating the insights into business strategy, risk management and cash-flow assessments. If a company issues a substantial report—for example, a 200-page sustainability report—failing to read it can be a material omission in analysis.

You can watch the full webinar here.

Key takeaways

• Sustainability reports are additive and materially important to comprehensive credit analysis; not reading substantial reports can be a material omission.
• Focus on prioritized, material issues with granular, transparent data and clear baselines/targets. Avoid being misled by percentage-only claims, low materiality factors and unambitious goals.
• Peer benchmarking and intensity metric analysis are powerful tools to reveal true performance versus reported narratives.
• Due diligence is required when verifying data, seeking granularity, verification and triangulating with peer data, external sector reports and ESG ratings.
• Climate risk—physical and transition—is a main driver of corporate reporting and transition planning. Regulatory disclosures and state actions also continue to push measurement and reporting.

Terminology

There is no universal naming convention for corporate non-financial reports – titles range from sustainability, ESG, CSR, impact, or climate reports, and the choice of words does not reliably define the content.

For credit professionals aiming to assess whether a business model can remain viable over the medium to long term, the preferred term is “sustainability,” which encompasses E, S, and G factors and the broader notion of durable enterprise growth supported by risk and resource management.

Where to find reports

Where to locate sustainability reports varies. Some companies integrate ESG content into their annual report; whilst others publish standalone documents linked from Investor Relations or separate pages such as “Our Impact.” Due diligence is required to find all disclosures because the lack of standardization is a legitimate industry issue.

Inside the reports

Inside these reports, analysts should expect identification of material ESG issues and a management discussion of relevance, challenges, strategy, progress toward goals, governance around climate risk, and the CEO’s vision.

Data should support management’s statements, presented both as absolute amounts and as progress versus future targets. Examples include setting a baseline year (e.g., 2019), reporting absolute scope 1, 2, and 3 emissions, and tracking progress toward a target year (e.g., 2030).

Reports often align with regulatory and voluntary frameworks, including TCFD and CSRD, and may reference alignment with UNSDGs.

Best-practice characteristics

Best practice reporting emphasizes specificity, transparency, and granular, easily accessible data. Companies should disclose how progress is achieved, not just headline percentages.

For example, in PepsiCo where water is a material issue, the reports clearly identify water as material; provide absolute water volumes and global efficiency metrics; break out data by region, highlighting high-stress drought areas; set baseline years and absolute reduction targets; adopt more stringent efficiency targets in drought regions; and disclose related R&D and CapEx.

This helps analysts link upfront investments in process changes or technology to long-term cost efficiencies in raw materials.

Common pitfalls

• Opaqueness: Many reports lean heavily on photos, graphics, and percentage claims without the underlying data. Percentage progress can be misleading if the company sets a low reduction target or chooses easy baselines, or if it focuses on low-materiality scopes (e.g., scope 1 in service industries with inherently low scope 1 emissions). Analysts should remain skeptical of percentage-only announcements, preferring instead underlying data to form independent conclusions.
• Greenwashing refers to misleading stakeholders about the “greenness” of an activity, whether intentionally or inadvertently. Laws and litigation are addressing such issues. However, verification is increasingly required to assure data accuracy and supportability, with careful analysis of the ESG report helping to reveal a company’s actual sustainability footprint versus marketing.
• Overlong materiality lists with too many “priorities” lead to scattered efforts and weak results. The preference should be a shorter, prioritized set aligned to stakeholder engagement and achievable focus.

Analytical techniques for credit professionals

Sustainability reports should be treated as additive to traditional analysis of business, strategy, risk management, cash flows, and repayment capacity. They can be used to evaluate whether sustainability is part of the brand/strategy; understand initiative costs, financing (including borrowing), timing of benefits, and impacts on revenue growth, pricing power, market access, new problem-solving products, and market share capture.

Peer comparison remains foundational to credit analysis. ESG report data can be benchmarked across sector peers to identify leaders and laggards. A company may show strong reported progress yet still lag peers doing even better.

Sector reports from organizations such as Ceres can provide peer compilations focused especially on the “E” of ESG and climate risk, and ESG ratings offer helpful perspectives.

Analysts should ensure they understand the perspective behind any rating they use as ESG ratings differ by perspective. For example Fitch’s ESG Relevance Ratings speak to how relevant top material issues are to a company’s credit rating, whereas other providers may rate relative peer positioning.

Intensity metric analysis is when analysts create dynamic ratios that combine an E or S metric (e.g., carbon emissions or renewable energy) in the numerator with a financial metric (e.g., revenue) in the denominator. This can reveal that rapid corporate growth sometimes comes at the expense of ESG efficiency, producing a less rosy picture than headline claims, (just as margin analysis can reveal pressures behind top-line growth).

Regulatory and market context

• Global disclosure trends: There are increasing requirements for disclosure, such as California’s rules and the EU’s CSRD which require companies meeting thresholds, including those not headquartered locally, to measure and report ESG or climate risk, helping to drive decarbonization.
• Climate risk is a primary driver of sustainable finance, comprising physical risk (e.g., wildfires and floods) and transition risk stemming from attempts to run two parallel energy systems while scaling down fossil fuels and scaling up renewables as technology, cost, and scale allow.
• Stakeholder ecosystem: Stakeholders at the precipice of climate risk—especially insurance companies and banks, but also governments (sovereign, municipalities, cities), regulators, consumers, and lawyers—are driving financing for resiliency, mitigation, and adaptation. Medium- to long-term risk management tends to confer financial benefits over time because risk equates to liability and cost.
• US landscape: In North America, the environment is a “patchwork quilt” of federal and state action and inaction, with the federal landscape shifting every four years. Over the past four years there were many federal policies promoting sustainable finance activities across corporates, banks, and consumers, but since the new administration took office in January 2025, the course has reversed.
• Global financing pressures: COP 29 fell short of targeted annual financing commitments, implying more pressure on the rest of the world to finance solutions and increasing space for private sector credit and private financing to fill gaps. The timing coincided with a US election, which may have clouded proceedings.

What to watch

• Increasing demand for robust, clear, credible reporting with granular, easily locatable data
• Continued lack of agreed conventions but there is movement toward better practice.
• Increase in regulatory disclosures (e.g., California, CSRD)
• Corporate transition planning supported by banks, accounting, law, and consulting firms.
• Chaotic US policy landscape with state-level actions continuing. Disclosure rules push American companies to measure and report – the private sector is likely to fill the financing gaps amid global pressures.

Checklist for analysts

• Locate all relevant documents across annual reports, Investor Relations, and “Our Impact” or similar pages, including summaries, detailed reports, metrics documents, appendices, and framework references.
• Read for material issues and confirm that stakeholder engagement has led to a prioritized, short list of the most relevant and achievable topics for the short to medium term.
• Evaluate the data quality with a preference for absolute metrics, clear baselines and targets, regional granularity where relevant (such as drought-prone areas for water), and disclosure of how progress is achieved.
• Treat percentage-only claims with caution
• Check whether the baseline and target ambition are meaningful and whether the company is focusing on materially relevant scopes.
• Incorporate findings into the financial narrative: map initiative costs, financing, and timing of benefits to revenue, margins, pricing power, market access, product innovation, and market share
• Run intensity metrics to see ESG efficiency in the context of growth.
• Benchmark against peers using sector reports and multiple ESG ratings