ESG (Environmental, Social and Governance) reporting is the disclosure of performance in relation to material ESG risks and opportunities, both qualitatively and quantitatively, to explain how these material topics inform a company's strategy and overall performance.
However, while inroads have been made, there’s still room to improve as companies struggle to keep up with a growing demand for investor-grade ESG reports. There’s a significant opportunity for executives and boards to improve reporting for the non-financial metrics that ESG covers, closing the gaps, and providing greater confidence with stakeholders in delivering on strategy and ESG commitments.
ESG should be regarded as an opportunity, not a risk; it’s a means for executives and boards to build greater trust with employees, shareholders and communities in which they operate.
As ESG reporting evolves and companies disclose more relating to these issues, organisational ESG metrics will come under increasing scrutiny. Making sure these metrics are prepared with the appropriate rigor for investor use, and can hold up to regulatory scrutiny, will be crucial to future success and growth.
ESG and Financial Reporting
Watch John O'Donoghue and Adam Cunningham, two of our ESG & Climate Risk experts, talk about the renewed, intense focus on the potential impact ESG has on financial reporting.
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How we can help
A singular focus on creating shareholder value is giving way to a broader focus on stakeholder value. ESG initiatives can provide reputational and competitive advantages, unlock new opportunities, mitigate risks and increase long term market value.
A range of non-financial information is increasingly included in investor, customer, employee and other stakeholder communications creating a new challenge of consistent, high quality disclosure. We help businesses establish marketplace trust and credibility through rigorous, transparent reporting and assurance programs, and through communications strategies that engage stakeholders.
The needs of stakeholders extend beyond financial reporting into broader corporate reporting. To truly meet this need, clear reporting of integration of ESG into core strategy is required to demonstrate to stakeholders the non-financial aspects that are also critical to the company’s success.
Identify the ESG topics and metrics that are material to achieving the company’s core strategy and to creating long-term value to help prioritise reporting efforts.
- Have established frameworks and standards been leveraged, and engaged with all stakeholders to get their input, in determining material ESG topics?
- Which ESG standards and frameworks have been evaluated to determine whether the company is addressing the most significant risks and issues facing its industry?
- Are the right systems, processes and controls are in place to ensure consistency, completeness and accuracy of reporting? Has the company considered obtaining assurance over ESG disclosures?
Committing to ESG means moving away from an ‘add-on’ attitude towards ESG strategies, and moving towards an integrated approach where ESG is embedded in core strategy.
- Faced with a material decision today, are there conflicts between core strategy and ESG strategies?
Once a strategy is set, a company must be prepared for stakeholders to hold them to account. This means setting specific and measurable targets against KPIs for material ESG aspects, and driving desired behaviours by embedding performance against these targets in executive and management performance programs.
- Is the organisation prepared to set measurable ESG targets, tie these to executive performance and be assessed against these?
ESG reporting needs to include accurate, comparable and reliable information to facilitate decision-making by stakeholders.
- How satisfied is the organisation that the integrity of the ESG report is sufficient and meets the ASX Corporate Governance Statement?
- Are you comfortable with the integrity of your ESG report? Have you disclosed the process used to verify this integrity?
- Are there ESG policies, processes, controls, and governance in place, similar to those supporting financial reporting?
- Is external assurance required, or are additional processes implemented to confidently report ESG performance to stakeholders?
