At a Glance
- ESG disclosures have evolved from voluntary practices to an increasingly mandatory one in the world’s major economies
- The release of global sustainability disclosure standards by the ISSB can improve corporate transparency and comparability, making companies more appealing to investors seeking responsible investments
- ESG reporting alone does not trigger action, but rather, it allows a company to showcase its existing ESG-related activities
Environmental, social, and governance (ESG) disclosure refers to the reporting and communication of a company’s environmental, social, and governance performance. Disclosure has been largely voluntary in the past, but a shift is underway now.
Global adoption of ESG initiatives and reporting
Mandatory ESG reporting is gaining momentum in some of the world’s largest economies – the European Union (EU) and the United Kingdom (UK). In 2022, the United States Securities and Exchange Commission (SEC) has proposed a rule that will require publicly listed companies to include certain climate-related disclosures, including information on climate-related risks that could materially affect their business, greenhouse gas (GHG) emissions Scope 1, 2, and 3, and information on climate-related targets and goals, and transition plan.
As of 2020, 88% of public traded companies, 79% of venture and private equity-backed companies and 67% of privately-owned companies, had ESG initiatives within their company, according to a survey conducted in the US, UK, France and Germany.
ESG reporting for internal organisational transformation
Fostering a culture of transparency
The International Sustainability Standards Board (ISSB) recently launched two new reporting standards – climate and sustainability-related disclosures – in June 2023.
The standards are designed to provide investors and other capital market participants with decision-useful information about companies’ sustainability-related risks and opportunities, while improving corporate transparency, and attracting investment.
Keen to learn more about these new ISSB reporting standards? Read more here.
Promoting greater alignment, integration, and engagement within organisations
Businesses can effectively address sustainability challenges and enhance their overall ESG performance when the different departments and business units within the organisation share common ESG goals.
Bank of America, found that consolidating all ESG disclosures using the World Economic Forum’s Stakeholder Capitalism Metrics (SCM), into a unified set of reporting standards, led to a comprehensive internal overhaul. The exercise resulted in greater alignment and integration of all processes towards a singular reporting outcome.
Driving positive societal impact
ESG reporting alone does not initiate action, but rather, it allows a company to showcase its existing ESG-related activities that make a meaningful contribution to the United Nations Sustainable Development Goals (SDGs).
A Brazilian cosmetics company, Natura & Co. highlighted its initiatives to fight poverty and promote economic empowerment in its ESG reporting according to Global Reporting Initiative (GRI) standards.
The company made a significant contribution to achieving UN SDG Goal 1: Poverty Reduction through its engagement with the local communities and indigenous groups in the Amazon rainforest by sourcing ingredients from 5,500 families to ensure a sustainable supply of biodiverse ingredients.
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ESG initiatives for better business performance
Businesses that disclose their carbon emissions through CDP (formerly known as the Carbon Disclosure Project) save an average of $1.2 million annually in interest payments. CDP requires companies to disclose information about their greenhouse gas emissions and other environmental impacts.
The American multinational retailer, Walmart, through its sustainability initiatives, have prevented the emission of almost 650,000 metric tonnes of carbon dioxide, and saved nearly US$1 billion in energy.
Avoid the risk of legal costs
Since ESG reporting and initiatives are picking up pace, ignoring them could put your organisation at risk. For example, legislation such as the European Union’s Corporate Sustainability Reporting Directive requires sustainability reporting that includes human rights and environmental due diligence. Non-compliance with the directive can lead to severe consequences including fines.
Attract investors and boost investors’ confidence
Investors are more inclined to direct their capital to organisations with a track record of sustainability and have an ongoing commitment to improving their ESG performance. 89% of a sample of investors based in Europe, Asia Pacific, and North America consider ESG issues in some form as part of their investment approach.
The momentum for ESG is growing largely due to external pressure and an increasing demand from clients. These global investors reported their inclination towards ESG as more clients demand investments that are aligned with the UN SDGs, according to Capital Group ESG Global Study 2022.
When ESG drives operational excellence
With a plethora of statistics and reports detailing the increasing importance and benefits of incorporating and reporting ESG, it shows that ESG is one of the key shifts to watch. Given that ESG initiatives and reporting drive positive internal organisational transformation and improve business performance, in the long-term, ESG delivers better financial performance as it lowers operational costs and enhance overall efficiency.
With employees preferring to work for companies that care for the people and planet, fostering a culture of ESG awareness can motivate them to contribute to operational excellence and drive innovation.
Renoir delivers much more than just strategies and roadmaps. We have 28 years’ experience in delivering projects to full adoption using our behavioural and cultural change methodologies. Each client’s journey is unique, shaped by their available resources and current circumstances.