The recent pandemic has only sharpened investor understanding of the unpredictability of risks that companies can face in any given year. These unexpected challenges have also highlighted how ESG preparedness has softened the blow for those organisations that were ahead of the curve on integrating sustainability risks into decision making and reporting on progress.
The 2021 ESG Reporting Opporunity is a Guest Article written by James Bryne, ESG Consultant
The year 2021 marks the tipping point for ESG reporting for small and large companies alike so if you want to ensure your company can attract capital long into the future, then now is the time to get transparent about ESG. With a 77% YoY increase in investments to ESG funds (2019-20), combined with a boom in corporate reporting continuing in 2021, now is the crucial moment for the financial sector and market participants to fully engage with the long term ESG reporting trend.
Yet, many management teams are still unsure exactly what addressing ESG involves or looks like, which is understandable as an international ESG reporting standard has yet to be defined. For instance, enhancing ESG reporting came in a dismal 6th place as a priority for CFOs, yet 69% of these same CFOs say that gathering ESG data and information across their company is a much greater priority compared to a few years ago. As a repricing of assets gets under way using ESG factors, this disconnect between the strategic importance of ESG compared to action on the ground is a huge opportunity for future focussed companies to lead in their sector or market. Let’s take a look at the most impactful ways resilient companies are harnessing ESG:
ESG Ratings
Investors are increasingly turning to ESG ratings to guide their decisions and its vital that you ensure your company makes the cut. From a legal standpoint it’s also crucial that investors see you as a safe pair of hands which understands and mitigates ESG risks promptly. This means benchmarking your governance and creating investor and stakeholder relevant ESG reports and marketing.
Double Materiality
Double materiality means risks and opportunities which can be material from both a financial and non-financial perspective. The Companies Act 2006, section 172 already mandates that companies consider the effects of their actions on other stakeholders (the Social in ESG). Integrating ESG metrics fully into your materiality assessments is now the best way to stand out in the market and make the most of Win-Win material opportunities.
Climate and Social Reporting Collide
Climate reporting is set to become mandatory across the UK economy by 2025. The TCFD recommendations have huge implications for how companies approach and report non-financial risks (which are in fact increasingly becoming financial risks, again think double materiality). Activist investors are increasing pressure on Boards to address ESG risks and harness climate transition opportunities. This long term trend is all backed up by the Principle for Responsible Investment (PRI), that advised the FRC on the creation of the Corporate Governance Code as well as the UK Stewardship Code with its focus on the UN Sustainable Development Goals (SDGs).
Govern with your Stakeholders
Embedding ESG into governance means looking at your business ethics, such as your business code of conduct and supplier codes. This includes enhanced stakeholder input to co-create relevant ESG and climate governance. This input can reduce reputational risk from activist investors, creates better capital raising opportunities and enables a better more efficient business without sacrificing positive impact. This all begins with having a strong purpose that describes your company’s purpose beyond making money for shareholders. As we have said before, being truly purpose driven starts at the top of the organisation with authenticity, clarity and consistency. Integrating ESG into your corporate governance and reporting gives life to this purpose, showing the world you are not just ready for the future, but are actively creating a better one.
