Environment, Social and Governance (ESG) reporting is now a requirement in many sectors, but particularly in financial services and quoted companies.
ESG reporting goes way beyond Corporate Social Responsibility (CSR) and Governance, Risk and Compliance (GRC) because it encompasses the impact on the organisation, by the organisation and the organisation’s supply chain. As such, the range of stakeholders that may be impacted is far wider. According to GRI (Global Reporting Initiative) stakeholders are those who can reasonably be expected to be significantly affected by the firm’s activities, or whose actions can reasonably be expected to affect the ability of the firm to successfully implement its strategies and achieve its objectives, i.e. to whom the firm considers itself accountable. This means that stakeholders can include investors, shareholders, largest suppliers/buyers, employees as well as regulators, trade unions, NGOs, and the general public.
Increased financial performance
Taking a positive approach to ESG has shown to be closely linked with above average financial performance. Indeed, recent research shows that companies that place importance on ESG factors have seen profits rise 9.1% and revenues grow 9.7% over the past three years, and they tend to find it easier to raise capital. https://capitalmonitor.ai/sector/tech/link-between-esg-investment-exists-new-research/
In order to reap such benefits firms need to embrace an ESG ethos wholeheartedly, and foster an ESG culture right across the business. This means that ESG needs to be managed all year round, not just when it comes to preparing annual reports. By adopting an ESG culture throughout the organisation, promoting it as a ‘business as usual’ approach means that come reporting time, all the hard work will already have been done, especially if the organisation has invested in the appropriate tools for managing ESG requirements.
A company-wide approach saves time later
ESG Governance policy involves various elements which work together to help develop a company-wide approach. These elements are key to defining an effective ESG policy:
- Communication and Training
- Terms of Reference
- Escalation and Changes
- ESG regular reviews
- Roles and responsibilities
The board, senior management and business lines will all be involved, as well as the ESG management role which may be part of the GRC operation, or it may be a standalone department.
It is important to follow industry guidelines, however, there are a few to choose from with no outright leader yet fully established. At the moment the main ESG reporting metrics are defined by GRI (GSSB) which focuses on the wider impact materiality of ESG by and on the firm and on stakeholders; SASB (Sustainability Accounting Standards Board) which focuses on the financial materiality of ESG i.e. enterprise value creation by the firm on investors
Choose your reporting framework wisely
Both GRI and SASB are consistent and compatible. Other bodies also require ESG reporting such as stock exchanges and regulators. Many firms are issuing their own ESG or sustainability reports, however, if care is not taken, this can lead to problems such as accusations of greenwashing. Each firm should adopt the reporting framework that best suits their own requirements.
Having a company-wide ESG management tool that can capture the relevant information, and provide workflows and alerts to ensure that line of business managers provide data when required, will enable the ESG manager to report up to the board in a timely manner. It will enable the firm to meet ESG reporting requirements and, most importantly of all, will help to build a true ESG ethos across the business that will resonate with all stakeholders.
For more information about how RiskLogix could help your organisation to manage ESG operations, contact us today: firstname.lastname@example.org