In a business imperative, ESG is having a moment. ESG has become the financial markets' lingo, and it is increasingly being referred to as a data-driven approach to understanding long-term value. Investors and stakeholders at large today are demanding improved management of, and far more transparency into Environmental, Social and Governance (ESG) concerns.
This pivot to recognition for ESG has prompted companies to increasingly disclose ESG data voluntarily in an attempt to address investor queries and give deeper insight into a company's enterprise value.
However, ESG reporting comes with its own challenges. More than half (57 percent) of finance, accounting, sustainability, and legal executives at public companies with over $500 million in revenue stated that data availability (access) and data quality (accuracy or completeness) are their primary concerns when it comes to disclosing ESG data, as per a recent survey by Deloitte. Eighty-two percent respondents believe that additional resources will be required to develop ESG disclosures that fulfill the information demands of essential stakeholders.
Some of the major concerns that organizations need to address with respect to sustainability reporting include regulations and procedures governing the involvement of finance, audit committees and board of directors; current climate-related data being collected and the associated level of assurance; process for evaluating materiality of climate-related disclosures and the resources required by an industry to achieve proposed reporting deadlines.
We’re witnessing a radical shift in emphasis on enhanced disclosure, purposeful reporting, and financially relevant disclosure about how ESG factors impact financial reporting and an organization's results of operations.
So how can corporations respond effectively to this demand and incorporate both qualitative discussions and quantitative metrics in their ESG reports?
Companies today can employ a range of frameworks and standards for voluntary sustainability reporting, including Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD) recommendations. These reporting frameworks offer principles-based guidelines to assist businesses in identifying ESG themes to cover while also determining the structure of ESG information they disclose.
Furthermore, companies must avail assurance engagements such as third-party assurance ranging from review or examination-level attestation from an independent accounting firm to verification or certification services from engineering and consulting firms. This assists ESG information users, including investors and other stakeholders seeking transparency, high quality, accurate, and reliable data about ESG initiatives.
There are certain hazards too that firms must avoid as they mature in the ESG ecosystem. These potential pitfalls include becoming distracted by the desire to be everything to every stakeholder. They should instead focus on relevance to corporate strategy. They should identify performance, risk, and opportunity areas that allow a company to successfully monitor its performance against its vision while also communicating credibly to stakeholders. Another major stumbling block is failing to establish metrics and targets that are related to gutsy and ambitious public commitments. Corporations should think about such pledges in light of the impact on the financial statements today. ESG Reports must show a connection of thought between what they're doing strategically and how that's translating into their performance currently.
As the regulatory environment evolves, it is vital for businesses to fully comprehend and respond to this call to action, in order to advance their focus on ESG, which is enabled by high-quality disclosure.
The writer Bhagyashree Jain (Twitter handle: @TheBhagyashreeJ) is the founder of The Disposal Company, a Sustainability-Tech startup backed by Accenture. She is a renowned name in the Waste Management and Climate-Tech space and is also an ESG Consultant to young startups, companies and investment firms.
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