What next?

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With institutional investors using nonfinancial information more often in their decision-making, what should reporters do next?

We believe the actions split into three main areas:

  • Meet your investors’ and prospective investors’ expectations
    1. Take a long-term view
      Meet investor needs by informing them of the most material environmental, social and economic aspects that could impact your company’s ability to generate value over the longer-term — and what steps you are taking to manage them.
    2. Consider the global megatrends
      Understand what could be shaping and disrupting your industry over the coming decades. Balance current risks with future opportunities to show investors your business model is future fit.
    3. Address climate risks
      With a legal framework to decarbonize the global economy by mid-century, investors expect you to significantly rethink your climate disclosures. Not only will you be expected to report on the direct impacts of your business on greenhouse gas emissions, you’ll also likely be required to articulate the potential physical impacts of climate change on your assets and supply chain, and how your current business model will be sustained in a zero carbon future.
    4. Allocate capital and infrastructure to ESG
      Investors agree that environmental and social aspects of performance are fundamentally important and for too long have been overlooked. Evaluate the adequacy of your allocated capital to put processes and procedures in place to address ESG issues and regulations.
  • Seize the opportunities to tell your organization’s performance story
    1. Trust the evidence
      Academic research now reveals that companies with strong sustainability performance outperform their peers, and the market in general. Investing in understanding the opportunities of managing environmental and social risk could pay dividends.
    2. Set the agenda
      Investors understand just how important ESG information is to your business’s performance but still largely review this information and data informally. This provides an opportunity for your company to lead the way in highlighting your understanding and management of the risks and opportunities you face.
    3. Engage your stakeholders
      Involve a broad cross-section of your stakeholders in determining what aspects of your business are of most importance and keep them informed on progress.
    4. Engage your board
      Investors tell us they expect the board to have signed off on your strategy and disclosures. Engaging the board in the process early should provide the governance expected of you, and minimize the likelihood of heading in a direction inconsistent with their expectations.
    5. Connect your reporting
      Consider how you can make your reporting more connected, or integrated. This will seek to avoid the risk of producing disparate reporting that doesn’t align or, at worst, creates contradicting disclosures.
  • Address the essentials
    1. Materiality matters
      Avoid being seen as “green washing” in your sustainability disclosures by applying a robust materiality process. A well-considered report should be able to articulate the environmental, economic and social risks and the opportunities most important to your stakeholders, and the ability of these risks and opportunities to impact your business now and into the future. Focusing on the positive, but ultimately less material aspects, may undermine your credibility with readers.
    2. Be transparent
      Investment decisions are being made on the ESG performance of your business whether you report on them or not. Transparency on challenges you face, and how you are managing them, will be more beneficial than producing a report that just highlights the positive aspects of your performance. Reporting on ESG aspects should also be a challenging process. If not, you should question whether you’re actually telling investors something they don’t already know.
    3. Value third-party assurance
      Having independent verification as part of your reporting process is important, as over two-thirds of all investors say it is very useful or essential. Coverage of material issues, data and information will add significantly to the credibility of your reporting not just with investors, but all stakeholders.