Mandatory sustainability disclosure and increasing investor focus on companies’ environmental, social and governance-related (ESG) performance have been driving the global conversation around sustainable development for years. This growing importance of addressing climate concerns has led to the global rise of corporate ESG reporting.
But for the world to reach net-zero emissions by 2050, we need to focus on the path forward. Leaders from forward-thinking businesses need to respond to ambitious targets and find more effective ways to involve their stakeholders.
In the seventh edition of the Economist Impact’s Sustainability Week, business leaders, investors, policymakers, financiers, entrepreneurs, researchers and other attendees from around the world came together, virtually and on site in the UK, to discuss emerging trends in climate action and propose next steps for a successful transition.
We were excited to take part in the ongoing discussions, as we believe that our ESG reporting solutions must continue to adapt and serve the growing needs of businesses that are looking to measure and improve their sustainability performance with a practical and data-oriented approach.
Here are our four key takeaways from the event:
In a passionate wake-up call for businesses, governments and individuals, the UN’s Secretary-General, António Guterres, gave a keynote speech during Sustainability Week.
He called for more action, especially from the G20, with a focus on more sustainable economic infrastructures and more standardized reduction measures in the world’s leading cities.
“We can’t point fingers while the world burns,” he aptly put, mentioning the roadblocks that private financial institutions, banks and large businesses are facing. These organizations must begin to incorporate climate disclosure and carbon mitigation processes into their operations to encourage a steady path towards the climate targets set by the UN’s 17 sustainable development goals.
He also highlighted the importance of measuring and reducing the impact of the oil and gas industry at large.
One thing seemed clear: we need to see a change sooner rather than later, and that can only happen if the world’s economic powers come together.
The last major takeaway from the conference is the continued need for education around doing business sustainably.
Many companies, while meaning well, currently run the risk of damaging their reputation and alienating their stakeholders with what the sustainability industry has come to call “greenwashing.” Although business leaders may be well-intentioned, this growing phenomenon stems from the practice of making sustainability commitments without the audited data and hard evidence to back them.
As investors and buyers alike are looking for companies with values that resonate with theirs, whether through diverse and inclusive hiring practices, environment-friendly products or clear and realistic carbon-neutrality goals, businesses are quickly realizing that “sustainability” is becoming increasingly synonymous with ‘“profitability.”
But even though making public sustainability commitments might appear like a shortcut to winning over financial markets and the public, it can become an undeniable risk for businesses when done the wrong way—or for the wrong reasons.
With collecting data granularity being key to avoiding the risks associated with greenwashing practices, sustainability reporting now plays a significant role in corporate operations. If public companies want their public reports to have a larger and more positive impact on their bottom line, they must be careful and transparent in their communications and continue to measure and manage their ESG performance with the utmost integrity.
As if having to navigate around these possible PR pitfalls wasn’t enough, the desire for transparency and accountability in sustainable business practices has brought about even more standards for businesses to report to. But with all the options out there, it can be difficult for corporate sustainability teams to keep up.
Resources like GRI’s recent report, which categorizes the most common standards, frameworks, rankers and raters in a visual graph, can be quite helpful. In most cases, partnering with a sustainability consultant can help companies stay up-to-date on changing requirements.
Another big takeaway from the conference was a resounding question: how can financial markets and regulators work together to ensure a greener, more inclusive and more net-zero friendly economy?
Part of the answer seems to lie in forming new international partnerships, consolidating existing bodies and standardizing existing frameworks.A recent example of this type of collaboration is the announcement of a new partnership between the IFRS Foundation and the Global Reporting Initiative (GRI). Under this new agreement, their respective standard-setting boards, the International Sustainability Standards Board (ISSB) and the Global Sustainability Standards Board (GSSB), will coordinate their programs and activities.
As a reminder, the IFRS Foundation first announced the establishment of the ISSB in 2021, during the COP26 summit. The initiative was created to provide a comprehensive international baseline for investor-oriented climate disclosures across capital markets.
The parties’ latest agreement highlights a growing trend toward collaboration that will make reporting processes more compatible and give investors a baseline of disclosure data to refer to. ESG reporting is increasingly becoming a key non-financial factor for large companies looking to be transparent with stakeholders on the impact of their growth.
A few other questions came up during the conference: What kind of ESG information do investors rely on, and how can unlisted companies be transparent enough for ranking agencies to assess them as accurately as possible?
As investors are turning a critical eye on companies’ corporate social responsibility (CSR) strategies and their execution, businesses of all sizes have a powerful economic reason to consider building out their sustainability reporting and emissions disclosure processes.
Although the sheer number of frameworks and standards emerging worldwide adds a level of complexity, we expect that global standards will eventually be harmonized, especially as sustainable development becomes recognized as a key growth and success factor.
In all the buzz around EGS disclosure, it’s easy to miss the reality of the equation: the same raw data can be used to answer nearly all disclosure and reporting questionnaires. While choosing the most relevant standards and frameworks is important, businesses would benefit more from focusing on what data they need to collect to answer any possible standard.
If corporations were to take a bottom-up approach to collecting ESG data, they would have an easier time reporting to any regulatory or standard-setting body.
This is where choosing the right tools plays a critical role. An end-to-end ESG data management and reporting platform will automatically aggregate ESG data into KPIs on everything from waste management and energy efficiency to diversity and carbon emissions. Businesses can then use these actionable insights into their performance to not only identify risks and opportunities and improve their operational and growth strategies, but also create more transparent and engaging stakeholder communications—and more value for investors.
While rating agency assessments and new government disclosure regulations—like those recently announced by the US Securities and Exchange Commission (SEC)—are shaping the future of non-financial reporting, businesses can and should be proactive in assessing their own data, including through auditing. Although ESG reporting has a tremendous profitability factor when it comes to investor appeal, it isn’t just beneficial towards public companies: it can also help organizations assess risks, gain visibility into their supply chain, increase employee retention and build a stronger public image.
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