5 Lessons From Gap Inc.’s Digital ESG Reporting Process

Gap, Inc. is a global apparel and accessories retailer that was founded in 1969 by Donald G Fisher and Doris F Fisher. The San Francisco, California-headquartered company operates through multiple brands such as  Gap Global, Old Navy Global, Banana Republic Global, Athleta, and Other.

In April 2022, Gap, Inc. published its ESG Report for 2021, becoming the first among US companies to release a digital (XBRL) sustainability document this year. The company used the IRIS CARBON® SaaS solution for its XBRL tagging and now boasts of a high-quality digital ESG document that is accessible to all stakeholders.

We spoke to Marvin Smith, Director, ESG Reporting and Disclosure, at Gap, Inc., about the lessons learned from his company’s digital sustainability reporting process. We have compiled some excerpts from our interview with Smith as ‘5 Lessons From Gap, Inc.’s Digital ESG Reporting Process’. Here are the lessons:

Lesson 1: Think About Your Stakeholders’ ESG Information Needs

The first step any organization needs to take to get started with ESG reporting is to conduct a materiality assessment. Such an assessment would help the organization identify ESG issues specific to its operations. Each issue needs to be approached from the perspective of its impact on the organization and its importance to stakeholders.

Gap conducted a materiality assessment that highlighted the critical areas of concern for its various stakeholders, including investors and consumers. The exercise helped the company identify ESG issues that pertain to apparel and accessories retailing.

Now that the company’s 2021 sustainability report is published, the ESG reporting team continues to solicit feedback from various quarters. “It is still a priority for us to continue to solicit feedback from key stakeholders. That’s something we are doing following the release of this report,” said Marvin Smith. “It’s just (about) getting feedback on the value of multiple sections in the report to better understand investor perspectives in particular and identify areas where we can improve.”

The key takeaway from Gap’s ESG reporting experience is a continuous dialogue with stakeholders, both before and after the report is prepared and published.

Lesson 2: Think About The Preferred ESG Data Consumption Format

Gap’s Marvin Smith says there are two elements to an organization’s ESG disclosure – one is the actual disclosure content itself, which includes ensuring the content is comparable, reliable, and useful to key stakeholders; the other is about how accessible the content is.

Different stakeholder groups – such as investors, consumers, data aggregators, and rating agencies – access ESG information in different ways. It is up to the company to ensure that each stakeholder group can access the information in the format it prefers.

“While we produce very lovely ESG reports that appeal to a broad set of stakeholders, the way that investors, data providers, and data aggregators access information is often through the XBRL format,” said Marvin Smith. “Having that machine-readable element is just another way to ensure that you’re making it easy for key stakeholders to process and evaluate our ESG performance.”

For the uninitiated, XBRL stands for eXtensible Business Reporting Language. XBRL allows report preparers to digitally insert machine-readable tags or labels against the data they wish to disclose. Reports with machine-readable tags are more accessible and comparable, apart from being easier to analyze because computers can understand and interact with them. The machine-readable tags are available in a taxonomy, which is a digital version of accounting or sustainability standards. Market regulators, central banks, and supervisory bodies around the world have begun to mandate disclosures in the XBRL format because of machine readability and ease of collection and analysis.

Lesson 3: Understand How XBRL Benefits The ESG Reporting Process

Gap Inc. used the SASB Standards XBRL taxonomy for its digital ESG disclosures. As mentioned above, an XBRL taxonomy is a collection of machine-readable tags. It is a digital representation of a set of accounting or sustainability standards.

Gap has been a long-time user of SASB standards. Marvin Smith says there is a difference between using the SASB standards themselves and using their XBRL version. Speaking about the experience of tagging ESG disclosures using SASB XBRL labels, Smith says the process of tagging Gap’s ESG disclosure was an incredibly insightful one and helped the ESG reporting team gain a better understanding of the SASB standards.

Smith says there is a difference between how ESG information is disclosed using the SASB standards and how the SASB XBRL taxonomy functions. “The XBRL taxonomy has a level of rigidity – and I’m saying that not in a bad way. It organizes and structures things in a way across multiple dimensions that is very well thought out and very simple for people to process,” Smith says.

The taxonomy forces an ESG reporting team to be more clear and specific about their disclosures and communicate them in a way that helps investors understand the company’s performance, according to the ESG director.

To produce a sustainability report in XBRL format, an organization would have to outsource the digital tagging process to a service provider or procure an XBRL reporting software license. Gap Inc used the IRIS CARBON® SaaS solution for its XBRL report creation process. Marvin Smith says his team received excellent support from IRIS CARBON® experts in understanding and working with the SASB taxonomy.

Lesson 4: Ensure There Are No Visible Gaps In Your Sustainability Disclosures

Gap Inc receives feedback from data aggregators and non-governmental organizations that analyze the company’s ESG performance based on publicly available information. At times, these stakeholders seek the company’s feedback on their assessment of its ESG performance.

Smith says his team often finds gaps in the stakeholder assessments of Gap’s performance. “There are things on the website or in the ESG report that they have missed that are critical to understanding how we think about and manage ESG issues,” Smith says. He further says that if stakeholders are missing some of the critical information, then the onus is on the company to ensure the data is presented in a manner that makes it more accessible and easy to identify.

Organizations need to understand that while some of the accessibility issues are addressed when sustainability reports are prepared in XBRL format, there are other places where stakeholders expect to see ESG information displayed – such as the company website and other collateral. The absence of ESG information in sources that stakeholders tap into would constitute gaps in disclosure.

Lesson 5: Understand That Digital Reporting Is The Way Forward

Marvin Smith says Gap Inc decided to adopt digital (XBRL) ESG reporting for two reasons: 1. To prepare for the soon-to-come US Securities and Exchange Commission or SEC’s climate-related disclosure mandate; 2. To make ESG data accessible in a format that investors prefer – XBRL.

As we have mentioned before, XBRL is a widely-accepted format of financial, with regulators and supervisory institutions in over 60 countries expecting disclosures in the digital format. The format is expected to be mandated for high-quality, comparable non-financial disclosure too.

With both financial and non-financial reporting now receiving equal attention from investors, analysts, and other stakeholders, it is time organizations adopted an integrated reporting approach. According to Smith, Gap Inc has made this transition and is benefitting from it.

Integrated reporting is intended to facilitate a more comprehensive disclosure of an organization’s long-term value creation ideals and communicate the same to all stakeholders. If made accessible in the right format, such reporting is bound to provide consistent, comparable, and useful information to the stakeholders, leading to quicker and more efficient decision-making.

The lessons learned from Gap Inc’s digital ESG reporting process can be emulated by every organization with improved accessibility of reports and more effective stakeholder management. For any assistance getting started with XBRL reporting, contact us below.

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