As global concerns about climate change grow, governments and industries are exploring concrete sustainable development solutions to reach the collective goals of the Paris Agreement. Sustainability disclosure in particular has been at the forefront of the discussion as a means for companies to measure their impact on people and the planet and improve it.
With all these changes, more and more companies are wondering how they can build a sound long-term sustainability and financial strategy.
So we sat down with Patrick Elie, our co-founder and CEO, to discuss how companies can effectively integrate environmental, social and governance (ESG) reporting into their existing processes and adapt to quickly evolving disclosure requirements and frameworks.
During the pandemic, investors have taken more interest in responsible investing, and countless financial institutions have written about how companies that incorporated ESG factors into their business strategies were more resilient. Why do you think that’s the case?
Successfully managing ESG issues is all about mitigating risks and knowing which external factors are likely to impact your company. COVID-19 was a major external hreat, and companies that already knew what was at risk were better equipped to react and adapt to the disruption than companies that were taken by surprise.
For example, given that the pandemic’s biggest impact was on people, companies that had a good handle on social factors were better prepared to manage pandemic-related changes, like keeping their company culture alive despite their staff working remotely and taking care of their employees’ mental and physical health.
With new findings from the COP26 UN Climate Change Conference and the IPCC Sixth Assessment Report, all eyes are now on governments and organizations to act against climate change. Do you think ESG reporting can help us collectively reach the goals of the Paris Agreement?
Absolutely. At Metrio, we operate on the belief that you can manage what you can measure, and ESG reporting is all about measurement. Being able to accurately quantify greenhouse gas (GHG) emissions at a granular level will be critical to reaching the Paris Agreement’s goals and any new goals that were set during the COP26 summit. But these measurements can’t be mere estimations: they should be based on a clear understanding of emissions sources.
Once we’ve figured out where our emissions are coming from, we’ll know what we have to do to reduce them. But since we’ll probably be facing this challenge for the next century, short-term data management won’t be enough: we’ll also need to find innovative, sustainable new ways to encourage companies to reduce their emissions, even if that means compensating for them through carbon markets as a first step.
Although many countries have made non-financial disclosure mandatory, many more have yet to follow suit. What do businesses gain from disclosing their performance voluntarily?
ESG reporting might not be required everywhere right now, but it will be soon. For instance, the US Securities and Exchange Commission (SEC) is expected to announce new climate-related disclosure regulations in early 2022. Companies that are fully prepared when new laws come into effect will have a step up on their competitors, since they’ll be ready to provide reliable, audited data when they’re asked to. In fact, many of our clients have told us that they’re implementing a structured ESG reporting system because the cost of doing nothing would be much higher in the long run.
Companies that publicly share their ESG performance can also come out on top during the current labour shortage, since seeing how sustainable an employer is can motivate qualified candidates to apply and give existing employees more reason to stick around. We’ve experienced this phenomenon first-hand at Metrio.
Organizations with better ESG ratings can even receive better interest rates from lenders that consider them a lesser risk.
Lastly, stakeholders have a lot to gain from reporting, too. We’re seeing increased demand from investors for clear, audited ESG reports about the companies in their portfolios, as those reports help them assess risk levels.
Over the past few years, many governments have passed mandatory disclosure laws. Sustainability professionals are also anticipating that reporting frameworks will become increasingly standardized. How can organizations put in place a reporting process that’s flexible enough to adapt to constantly changing disclosure requirements?
We all wish we could have one framework to rule them all. But the reality is that the disclosure landscape will be multi-fold for a while still. The best way to adapt to that many unknowns is to put in place a versatile system that can house and analyze all kinds of ESG data. Specifically, companies should collect as much field data as they can, in as much detail as they can. That way, they’ll be able to calculate just about any output from their raw data, no matter what questions rating agencies and frameworks throw their way.
Read the second part of the interview
This interview was originally published in December 2021 for participants of the VRF Symposium.