What is New in ESG Reporting?

The effects of climate change are seen across the different sectors. The business and investment sector is not left out. As climate change became more established across the globe, the public and governments began to pay attention to its consequences in the activities of organizations. Interestingly, investors are also assessing the risk level and ESG Reporting of an investment based on sustainability criteria. Environmental, social, and governance are the criteria established for assessing the sustainability of investments in the light of the ever-dynamic climate change. ESG investing involves a consideration of ESG factors. Over 40% of investors currently apply ESG investing, as passive or active investors.

ESG reporting

ESG reporting can be described as the process employed for sharing sustainability information with stakeholders. Investors are seeking critical information as regards the sustainability of organizations to guide investment decisions. ESG reporting is the only means of connecting stakeholders with the required information.

Reporting trends

Formerly, ESG information was only available to stakeholders such as asset managers, brokers, banks, and investment consultants. A new trend has been established, and ESG information is now available to investors. Active investors carry out an extensive analysis of ESG reports in deciding on investment risks and opportunities. Passive ESG investors, on the other hand, could decide based on third-party ESG analysis carried out by reputable sources.

Irrespective of the type of investor, the role of proper ESG reporting in gaining investor confidence cannot be overemphasized. Institutional investors particularly carry out extensive ESG analysis to ascertain the future and security of the investments.

It is also important to mention the change in the trend of application of ESG reports by investors. Investors used to consider ESG information as peripheral information that does not influence decisions. Now, ESG information is considered as core information that is even regarded above performance. This trend exists because ESG indicates the sustainability of investments, and sustainability is the goal for a lot of investors. It is also a trend that is seen across the different classes of assets.

The impact of ESG reporting is noteworthy. Organizations that pay attention to ESG are getting a bulk of the available investments. For example, the assets managed by signatories to the Principles for Responsible Investment, which is supported by the UN, have grown tremendously. The value of assets managed by these organizations increased from about $22trn in 2010 to about $60trn in 2018. It is also noteworthy that about 60% of investments in the EU are managed with the integration of sustainability strategies.

Importance of ESG reporting

ESG is highly encompassing, covering areas that range from greenhouse gas emissions to gender diversity. Investors want to know how well an organization is adapted to environmental, social, and governance changes.

High-quality ESG reporting should be the priority of organizations that aim to attract the most investors. Reports have shown that ESG-related information is highly considered by investors in making decisions. With high-quality ESG reporting, investors are represented with all the information they need to decide on the riskiness of a particular investment.

ESG investors simply need the reassurance that a company is making the right decisions in the light of climate-related opportunities and risks. Sharing ESG-related information with high-quality reports is an established way of improving the confidence of investors. Companies thus need to address the need for ESG-related information by providing comprehensive information as ESG reports.

ESG reports are important to the issuer too. Before reports are issued, there is typically the process of analyzing and reflecting on ESG information in-house. This process can become highly effective for assessing existing measures evaluating risk management strategies to develop a competitive advantage. Every organization can thus apply ESG reports for achieving positive social and economic outcomes.

The relationship between ESG and regulatory guidance, as well as public discourse, cannot be overemphasized. With proper reporting, an organization can tell where it stands and how activities can be optimized according to regulatory guidelines.

Proper ESG reporting

Proper ESG reporting starts with identifying the kind of data to include in the report and standardizing reports across sectors and industries. The process has been simplified by organizations and committees that create disclosures. An example of these task forces is TCFD. Organizations such as the Sustainability Accounting Standards Board (SASB) also provide guidance for creating proper ESG reports. These organizations and committees create disclosures to encourage the standardization of reports. SASB offers tools and standards that are tailored to the needs of the investor as well as the company. For investors, the tools and standards help to get a better picture of the sustainability journey of the organization. There are also tools designed for engaging companies with values that align with those of the investor. For companies, SASB offers tools and standards needed for the creation of consistent reports according to standards that are most suitable.

TCFD is a task force set up to create disclosures necessary for achieving consistent, reliable ESG reporting. The disclosures cover risk management, governance, metrics, and other important aspects. Frameworks created by TCFD help organizations to understand what financial markets require from them.

Investors simply require extensive information to understand the activities of organizations and how it relates to climate change. Effective ESG reporting should present this information in a manner that is relatable to investors. The creation of high-quality ESG reports also requires setting proper goals and aligning teams to work together for proper data collection and analysis.

Conclusion

ESG reporting software or services can be strategically applied in align activities to climate change. The ability of organizations to transition properly with climate change is related to participation in ESG-related activities. The proper reporting of these activities is crucial in achieving long-term growth and should be considered as such. Companies can effectively apply the level-playing field provided by ESG reporting to achieve the best social and financial outcomes. The possibilities of ESG reporting still remain untapped. As the popularity of ESG reporting grows, the financial and social outcomes are bound to improve. ESG reporting thus offers opportunities for long-term sustainable growth.

What's ESG Reporting?

ESG reporting described as the process employed for sharing sustainability information with stakeholders. Investors are seeking critical information as regards the sustainability of organizations to guide investment decisions. ESG reporting is the only means of connecting stakeholders with the required information.