Increasing numbers of investors are looking for ways for their money to make a positive contribution to society or the environment. According to the findings of a recent survey conducted by the CFA Institute in which 900 institutional investors, approximately 3,500 private investors, and 2,800 practitioners from the financial industry were interviewed across the globe, 85 percent of investment managers in a variety of countries are increasingly taking ESG criteria into account when making investment decisions. In addition to this, 76 percent of institutional investors and 81 percent of individual investors in Germany are interested in environmental, social, or governance investments or are already positioned properly. According to the research, the amount of ESG-linked loans to enterprises in Europe has more than quadrupled, from €27 billion in 2017 to €102 billion in 2019. This represents a significant increase. The relevance of environmental, social, and governance (ESG) reporting has grown in tandem with the rising worldwide interest in environmental and social issues, and it has become an essential component for companies. Because a growing number of businesses are currently required to report on environmental, social, and governance (ESG) issues, it is probably only a matter of time before your company will also be required to begin reporting on issues associated with ESG. You can find all of the information that you want about ESG reporting and how to get started here.
What is ESG Reporting?
Let’s begin by briefly explaining what the acronym ESG stands for before we go on to the matter at hand. The terms “environment,” “social,” and “governance” are referred to together as “ESG.”
- Environment: Changes in climate and emissions of carbon, pollution and waste, biodiversity loss, deforestation, energy efficiency, and electronic waste are all issues that need to be addressed.
- Social: Customer satisfaction, human rights, health and safety, protection of personal information and privacy, gender and diversity, and community relations are all important factors.
- Governance: Board diversity, corporate ethics, the form of audit committees, tax transparency, corruption and instability, lobbying, and whistleblower programs are some of the topics that have been discussed.
Why is ESG reporting important?
It is becoming more vital for companies to report on environmental, social, and governance (ESG) issues since the number of rules requiring such reporting from corporations is constantly growing. Even though ESG reporting is not yet required in all countries, an increasing number of businesses are disclosing this information voluntarily because they have realized how important it is to communicate their business strategy as well as the impact their company has on our planet. This is the case even though ESG reporting is not yet required in all countries. In fact, as of July 2020, more than 90% of the corporations in the S&P 500 had already established and made annual ESG reports mandatory.
Regulations make ESG reporting mandatory
Despite this, beginning in the year 2023, a greater number of businesses will be required to submit information on sustainability. The EU Commission proposed this new proposal for a Corporate Sustainability Reporting Directive (CSRD) in April 2021. The CSRD would be an EU sustainability reporting standard that would improve the existing standards of the current Non-Financial Reporting Directive. Compared to the 11,000 companies that are required to do so under the current NFRD, this new directive will require up to 50,000 large public-interest European companies, as well as all companies listed on EU-regulated markets, to report on ESG-related factors. This is an increase from the number of companies required to do so under the previous directive. According to the Sustainable Finance Disclosure Regulation, environmental, social, and governance disclosures are already required of asset managers and other players in the financial system. The SFRD will begin requiring additional Level 2 disclosures on July 1, 2022. These disclosures will consist of a number of quantitative ESG criteria and will cover a range of topics.
ESG reporting makes your business more attractive for various stakeholders
Reporting on environmental, social, and governance factors is crucial because it helps businesses be more open about the possibilities and dangers they face and demonstrate to investors how they manage risks and how they may be reduced. Because the non-disclosure of performance in those three areas can be seen as creating a bigger financial risk, investors might choose to steer clear of you because of your lack of transparency. This is because they might believe that you are less likely to succeed as an investor.
Reporting on environmental, social, and governance (ESG) concerns may make your company more appealing both as a brand and as an employment opportunity. According to a poll conducted by First Insight, consumers, particularly Generation Z members, are more willing to support firms that promote environmental, social, and governance problems. Accordingly, up to 62% of Generation Z would prefer to purchase from a sustainable company, and 73% of them would be willing to pay up to 10% extra for environmentally friendly items. The same is true for your appeal as an employer. Considering that 76 percent of millennials consider an organization’s sustainability policy to be a crucial element, reporting on ESG will enhance your chances of attracting fresh talent.
In addition, Fidelity Investments has published research which demonstrates that businesses with great performance with regard to ESG factors also generate superior profits and are thus able to gain a competitive position in the capital markets.
It is abundantly clear that environmental, social, and governance (ESG) issues now constitute and will continue to do so in 2021 and the years to follow. Therefore, how is it that your business can report on ESG criteria?
ESG Reporting Standards
At present, organizations still have a good deal of leeway when it comes to the disclosure of environmental, social, and governance (ESG) information. This means that when they report, they can emphasize or minimize different aspects of their operations that they believe will be the most advantageous for their company and the objective of their report.
Businesses may benefit from using reporting standards because this helps them understand how to arrange, measure, and explain the environmental, social, and governance (ESG) information they wish to disclose to the public. To allow more openness and coherence throughout the reporting process, it is highly suggested that companies base their reporting on recognized standards and frameworks. This recommendation is made in this document.
Over the last several years, a number of different ESG reporting criteria have been developed. These guidelines include frameworks, national and international regulations, as well as voluntary standards. Some frameworks are designed specifically for a certain sector, while others, like the Task Force on Climate-related Financial Disclosures, are tailored to address the challenges presented by climate change (TCFD). On the other hand, each of these rules has a somewhat distinct set of expectations, making it difficult to compare them. Consequently, the cries for a single, uniform standard are becoming ever more audible.
The Worldwide Reporting Initiative (GRI), which is a representation of the global best practices surrounding the disclosure of sustainability information, is the source of one of the reporting standards used regularly in Europe.
ESG reporting will also be very relevant to the European Commission’s new proposal for the Corporate Sustainability Reporting Directive (CSRD), which states that more firms will be expected to report on ESG-related subjects as part of its requirements.
The Sustainable Financial Disclosure Regulation (SFDR) is yet another standard that investors can utilize. Its primary purpose is to increase global transparency and liability with regard to sustainable investments. Additionally, it enables investors to compare different investment opportunities more directly in terms of the level of sustainability they provide.
The International Financial Reporting Standards Foundation (IFRS) made an encouraging announcement in February 2021: they will begin developing a global sustainability reporting standard. The goal of this endeavor is to achieve greater standardization and unification for ESG reports all over the world.
5 Tips how to get started with ESG reporting
When you are getting started with your ESG reporting, there are a few things that you should keep in mind in order to guarantee that the implementation goes as smoothly as possible. The following are five suggestions that can help you get started with your ESG reporting right away:
1. Start off with creating an ESG strategy
You should first determine the short-term and long-term objectives of your sustainability strategy, then make it a point to continually assess the effectiveness of this approach over time and make any necessary adjustments. In addition, you need to ensure that all of the teams and departments within your firm are on board with the plan and that you keep them apprised of any adjustments or advancements made to your strategy.
2. Gather information internally
Collecting all of the necessary information to generate the report may at first seem an onerous task. However, a significant portion of that information is already accessible from inside the organization. Your process of analyzing data and information will go much more smoothly if you first have an overall picture of all the information pertaining to ESG that is currently accessible across the various departments and stakeholders. Thankfully, advancements in technology and software, such as Planetly’s Climate Impact Manager, have made it possible to significantly simplify the process of data collection in the present day.
3. Decide on the reporting framework you want to use:
There is a vast selection of various frameworks that may be used to fulfill a variety of requirements. In a general sense, there is no right or wrong answer to this question when it comes to choosing your framework. Nonetheless, you should always bear in mind who you are reporting to and precisely what it is that your firm wishes to report.
4. Ensure reliability and transparency in your reporting
As we have already established earlier in this discussion, openness is a very important factor in ESG reporting and in the quality and authenticity of your data. Therefore, make it a priority to design consistent and regulated rules, since this will enable you to quantify your measurements. In addition, ensure that your metrics are SMART (Specific-Measurable-Achievable-Realistic-Time Bound), so that you can readily illustrate your development and successes over time.
5. Communicate how your ESG report aligns with your business strategy
Keeping the public and your stakeholders informed about how your company’s environmental, social, and governance performance aligns with its overall strategy is critical.When sharing your progress with others, be explicit and upfront, and offer any insights you gleaned from the report.
Reporting on environmental, social, and governance (ESG) issues may be very advantageous to a company and provide it with a competitive edge with investors, customers, or workers.
And as a last piece of advice, do not be afraid to seek assistance. There is always someone who is able to assist you, and that person may even be us here at Planetly. Please do not hesitate to contact us at any time if you need assistance with the ESG reporting that you are required to complete; we will assist you in getting started.
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