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Environmental, social, and governance (ESG) reporting is no longer considered a soft investment. Market demand and regulatory guidance are coalescing quickly. Consistent and transparent financial reporting standards have helped investors measure business success for decades, and now that scope is expanding to include ESG strategy. Investors are funneling money into ESG investment vehicles and demanding information on company ESG practices. They are voting against directors of companies that underperform in identifying material ESG issues and incorporating the implications into their long-term strategy, as State Street Global Advisors wrote in a letter to CEOs (https://bit.ly/3z1su1J).
From a regulatory standpoint, the European Unions proposed Corporate Sustainability Reporting Directive extends the coverage and scope of ESG reporting requirements, including requiring limited assurance of ESG reporting. Meanwhile, the International Financial Reporting Standards (IFRS) Foundation, which is supported by the International Organization of Securities Commissions (IOSCO), is preparing to launch an international sustainability standards board at the 2021 U.N. Climate Change Conference (COP26).
This march toward a more global set of standards will continue. In 2020, the World Economic Forums International Business Council (IBC), comprising 140 CEOs and including the Big Four accounting firms, outlined an industry-agnostic ESG reporting framework, proposing 21 core metrics and 34 extended metrics that cover a range of issues, including greenhouse gas emissions, social factors (e.g., pay and gender ratios), and governance targets.
How do boards meet this moment? What is the role of audit committees? How can management teams incorporate ESG into their strategies? How do companies tell their ESG story to stakeholders?
These questions may seem daunting, but it is important to see ESG as a journey, requiring a new kind of engagement with stakeholders that properly frames business decisions and helps leaders craft sustainable strategies to create value today and tomorrow.
The ESG Moment: Seeing Opportunity Today and Tomorrow
ESG reporting is impacting the ability to attract new investors and affecting both the cost of and access to capital. ESG reporting can help companies build customer loyalty, compete for top talent, and understand risks that threaten their business models.
In that context, more and more companies are voluntarily preparing and presenting ESG information beyond industry and SEC requirements, according to The Time Has Come: The KPMG Survey of Sustainability Reporting 2020 (https://bit.ly/3mhdxVR)....