ESG reporting laws, as in those monitoring companies' environmental, social and governance performance, are coming.
The U.S. Securities and Exchange Commission (SEC) is working on a new rule that will require U.S.-listed companies to provide investors with detailed disclosures on how climate change could affect their business. Europe recently announced new requirements on how banks report environmental risks and carbon targets.
These proposals are only the tip of the iceberg. Regulators across the world are actively working on new legislation to increase corporate transparency on ESG issues.
It will take time for the regulations to get ironed out – and there still may be no universal measuring stick to evaluate ESG performance. But that doesn’t mean you should sit back and wait. The pressure to be more transparent extends far beyond regulators. Sixty-four percent of consumers say they choose, switch, or avoid brands based on their stance on societal issues. Eighty-five percent of investors consider ESG factors in their investment decisions.
Hone Your Reporting Strategy Now: Now is the time to get a handle on your ESG data. Here are four steps you can take today to get started.
Understand why you’re reporting on ESG: There are a variety of reasons to report on ESG initiatives. Some consider ESG core to their corporate values. Others seek to satisfy investors and shareholders. Still others look at it primarily for risk mitigation. Whatever the reason, understanding the why behind your disclosures will shape your ESG reporting strategy.
Choose the information you will disclose: Focus on ESG metrics that are most meaningful to your priority stakeholders – be that employees, customers, the board, investors, or regulators – and that align with your company’s values and strategy. If your company is committed to environmental stewardship, for example, consider reporting on energy efficiency, air and water pollution, and greenhouse gas emissions. Also consider what others in your industry are reporting to make it easier for stakeholders to compare performance. The next step is to measure ESG performance across your supply chain. No matter what metrics you report on, however, make sure your claims can withstand scrutiny. Expect public declarations to be fact checked more frequently by stakeholders and auditors.
Decide on your reporting frameworks. Nonprofits, business groups and other organizations have created dozens of reporting frameworks to guide companies on what ESG metrics to measure and how to do it. Three popular frameworks include the Global Reporting Initiative (GRI), Value Reporting Foundation (VRF), and Task Force for Climate-related Financial Disclosures (TCFD).
Each group has its own agenda, which means some frameworks focus on environmental metrics, while others focus on social issues. Since no one framework covers all aspects of ESG, many companies decide to pull from several frameworks to create their own. Understand your priorities and incorporate the frameworks that align closest with your objectives.
Leverage technology for an integrated reporting effort. ESG reporting is a complex undertaking that can’t be efficiently managed via spreadsheets. Manually collecting data -- on your carbon footprint and water usage, diversity and inclusion, ethical labor practices, and more – that might reside in many locations across the organization and your supply chain is almost impossible.
Integrated software simplifies data collection and reporting by bringing critical ESG data together in real time. This makes it quick and seamless to build reports, make decisions, and communicate your ESG efforts in a credible and cohesive way.
For effective ESG reporting, double down in 2022: The demand for ESG information is high. Don’t wait for regulations to shake out before getting a solid reporting process in place. Voluntarily reporting on ESG now gives you the opportunity to tell your own ESG story and proactively drive positive change.
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Image credit: Burst via Pexels
Jim Wetekamp is the CEO of Riskonnect, a leading provider of integrated risk management software. He is a recognized expert on enterprise risk, supply chain, and third-party risk management.