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The Underappreciated Nature of ESG Reporting

susie March 16, 2023 0 Comments

ESG reporting is a complex and multifaceted task as a vast range of topics and key performance indicators need to be considered. ESG professionals wear many hats, from data analysts to communication experts, to deliver comprehensive and accurate ESG reports. However, the lack of professional qualifications needed to practice has led to scepticism from issuers and stakeholders alike.

ESG disclosure is public reporting by a company’s management team on performance across environmental, social, and governance issues. Mandated by regulatory bodies, it helps stakeholders understand ESG risks and opportunities. Ineffective disclosure may be seen as greenwashing. There are 3 key reasons why ESG reporting is important:

  1. Transparency

ESG disclosure aids external stakeholders such as asset managers, authorities, or potential customers in gaining a better understanding of risks related to a company’s operations, emissions, or supply chain issues, which the company management might have previously kept confidential.

  1. Supporting efforts toward a Sustainable Future

The presentation of a company’s action (or lack of action) towards adapting to a net-zero economy needs to be clearly stated in ESG disclosures. Additionally, disclosure creates accountability for management teams that are either not making progress on ESG issues or are creating negative impacts through their business operations.

  1. Promoting loyalty

The support or validation of claims related to ethical practices and sustainable operations through ESG disclosure is crucial for building and sustaining brand loyalty among current and potential customers, employees, and supply chain partners.

The development of green finance has further highlighted the importance of ESG disclosures, as it is facilitated by the right type of ESG reporting. Companies that report on their ESG performance have an advantage over those that don’t, as investors increasingly prioritise sustainable investing. ESG reporting not only helps companies gain access to green financing but also enhances their reputation and helps maintain brand loyalty among stakeholders.

To establish consistency and clarity for both issuers and investors, it’s important to establish a standardised framework for reporting. The emergence of a “unified” standard such as the International Sustainability Standards Board (ISSB) can provide this framework. It’s time for ESG reports to be looked at from a professional standpoint, and for ESG experts to get the recognition they deserve.

ESG reporting requires a broad understanding of ESG topics and KPIs. It will continue to play a critical role in facilitating sustainable investing as green finance gains importance. Establishing a standardised framework for ESG reporting can benefit both issuers and investors, and it’s time to recognise ESG experts for their contribution fairly.