ESG: The time to report is now
September 17, 2021
The ESG Reporting Landscape & Growing Need
ESG (environmental, social, governance) performance is the core of corporate sustainability and a powerful driver of risk mitigation, resiliency and innovation. ESG is no longer a “nice to do” but a business imperative. Even during the tumult of the last 18 months, research suggests a majority of ESG-focused investment portfolios outperformed their non-sustainable counterparts during the pandemic, as well as throughout the start of 2021.
Covid-19 and social justice movements amplified investors’ focus on ESG issues and metrics. The IPCC’s latest report has put it front and center, and underscores the need for companies to disclose their environmental performance.
Regulators are moving toward mandatory climate disclosure. The Swiss government’s recent announcement provides the Securities and Exchange Commission a model to follow in the United States. (The EU has had a Non-Financial Reporting Directive since 2013.) Impact investors are launching more aggressive and frequent corporate campaigns to advance sustainability; shareholder activist Engine No. 1 won three seats on ExxonMobil’s board earlier this year.
There has been an exponential increase in the number of environmental and social proposals experiencing majority levels of support over the past five proxy seasons. The groundbreaking 2021 proxy season has continued the momentum. Harvard Law School’s Forum on Corporate Governance recognizes an ongoing trend of increased advocacy of ESG topics at large institutions. As investors and other stakeholders demand credible ESG data, companies must lead with quality disclosure.
ESG Reporting Benefits
ESG reporting can be one-stop shopping for stakeholders to find relevant information. An ESG report can serve as an educational tool for Investor Relations and Communications teams, employees or potential hires. Increased transparency through ESG reporting provides decision-useful information and positions your company as trustworthy. It is a crucial mechanism for accountability and offers opportunities for increased stakeholder engagement as well as innovation. Collecting data on ESG metrics allows companies to self-scrutinize and evaluate their business from a range of perspectives.
Further, ESG reporting gives stakeholders access to information that might otherwise be unavailable. Reporting on ESG issues offers a way to shape your narrative – what are your goals and how are you measuring them? What commitments have you made and how are you progressing? More data leads to greater competitive advantage and helps identify ways for your company to flourish in a low-carbon and socially responsible economy.
Best Practice for ESG Reporting
Whether a company is beginning the reporting journey or advancing towards leadership, there are a few practical principles every company can follow to be more transparent and meet stakeholder needs.
- Identify the right framework(s). For multinational corporations, each reporting standard, framework and platform meets a stakeholder need for information. While we are beginning to see a consolidation of reporting standards, there remains an alphabet soup of standards and single-issue disclosures: GRI, SASB, IIRC, TCFD, CDP, etc. You will likely follow more than one standard in your ESG disclosures. The good news is your ESG data can satisfy multiple standards.
- Conduct a materiality assessment. A materiality assessment gathers internal and external stakeholder input to identify and prioritizes risk and opportunity for your business and society.
- Get C-Suite buy-in. Educate senior leadership on the need to ensure your data collection processes align with your reporting plans. A positive byproduct is a directive from the highest levels for greater ESG focus and more integrated planning within the company.
- Be honest and modest. Transparently disclosing your ambitions, including the associated challenges and opportunities, builds trust and credibility with your stakeholders. Greenwashing is not an option.
- Don’t let perfection be the enemy of good. Whether you are still collecting data or determining what to proactively disclose, providing context in your response demonstrates that you understand the big picture and are committing to improvement. IESG disclosure is an iterative process and material will likely fluctuate over time. Regardless of how you choose to disclose ESG issues, the need is only expected to grow. The time to act is now. Global events over the past year have shown that transparency has never been so crucial.
As the adage goes, you can’t manage what you don’t measure. ESG reporting allows companies to do just that.
On September 30th, I will be facilitating a conversation with Verizon, an ESG practitioner, and the Value Reporting Foundation, an ESG disclosure standard, to discuss the state of ESG reporting, where it’s headed, and what companies need to know. (Register here.)