The importance of ESG performance is increasing due to new regulatory requirements, an evolving ESG reporting landscape, shifting stakeholder expectations and pressure from investors.
The terms ESG, sustainability and corporate social responsibility (CSR) often are used interchangeably, and disclosures are broken up into three categories:
1 Environmental: includes issues focused on climate risks, carbon emissions, energy efficiency, use of natural resources, pollution and biodiversity
2Social: includes issues focused on human capital, labor regulations, diversity, DEI, safety, human rights and community involvement
3Governance: includes issues focused on board diversity, corruption and bribery, business ethics, compensation policies and general risk tolerance
ESG metrics that encompass those three areas provide an additional lens for investors reviewing and evaluating company assets. These factors help identify emerging opportunities to manage long-term investment risks.
From a business perspective, ESG reporting is important to demonstrate how corporate purpose is brought to life and supports creating long-term value. It can also strengthen corporate reputations and trust with stakeholders. Increased regulations and consistency related to ESG disclosures is strongly supported by users and preparers.
Investors, as the users of ESG reporting, place greater importance on requiring consistent and mandated standards than finance leaders do as preparers. In fact, 89% of investors surveyed in the 2021 Institutional Investor Survey would like reporting of ESG performance measured against a set of globally consistent standards a mandatory requirement, but this decreased to 74% of finance leaders surveyed in the 2021 Corporate Reporting Survey