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Introduction
Environmental, Social and Governance (ESG) disclosures
is definitely going to remain essential for businesses and the pressure from
stakeholders to enhance ESG reporting will increase over time. Now that it is
firmly becoming a regularity in ESG reporting, the market demands for higher
standards and quality of disclosures. This is typically due to the response of
interests on specific ESG issues and topics amongst different groups of
stakeholders. A recent study that has assessed the regulatory landscape for ESG
disclosures summarised that ESG reporting is becoming more influential and
common across the world, that could be considered as the mainstream reporting
on the overall organisational performance.
The annual report published by Carrots & Sticks, covers the
analysis of the current trends in reporting, encompasses over 600 resources and
requirements across over 80 countries, which 75% represents the world’s biggest
economies. The analysis also incorporates the findings from the context
collated from policymakers that have shared their perspective on the best
practices pertaining to the requirements and standards of ESG reporting.
The overview of the assessment recorded in
the report includes the following:
- The Sustainable Development Goals (SDGs) has become one of the key reference points for ESG reporters in focusing on specific material risks and opportunities that are applicable for organisations. In general, not all 17 SDGs are commonly linked. Responsible Consumption and Production (SDG 12) , Decent Work and Economic Growth (SDG 8) and Peace, Justice and Strong Institutions (SDG 16) are regularly linked compared to Good Health and Well-Being (SDG 3) and Quality Education (SDG 4) – however this is predicted to change significantly following the current COVID-19 pandemic crisis.
- It is also obvious to observe the variations of the volume ESG reporting throughout the world. Across continents, the dominance of Europe in ESG reporting agenda remains, with 245 reporting instruments. In Asia, the trend is progressively increasing with 174 recorded reporting instruments. North America on the other hand recorded a distinguishable low number of reporting instruments (47) due to the lower number of national jurisdictions as one of the factors. Amongst countries, the highest number of ESG reporting provisions was observed from the United Kingdom, Spain, the United States of America, Canada, Brazil, Columbia and also China.
- Since 2016, the reporting provisions has increased around three-quarter to almost 400 and this is from the issuances by governmental bodies. The increase in trend is also impacted by engagements made by financial market regulators and central banks. Main and listed private sector companies comprised about 90% of the ESG reporting provisions. However, the SMEs and public sector generally remain the same since 2016.
- As one of the ongoing issues critical to ESG reporters is that there are no streamlined requirements on the framework in developing ESG disclosures. When it comes to the authenticity and credibility of data, there are still gaps in determining a reliable format and structure that has been established and made available. Though partnerships have been ventured in the past, there is still the need for more collaborations amongst all key stakeholders that include standard setters, regulators, policymakers, academicians, reporters and users.
The current regulatory landscape not only
reflects the perceptions in identifying key material categories in ESG
reporting, but also drives it. This furthermore creates disorientation for the
most suitable platforms to disclose ESG performance for different groups of
users.
According to Senior Lecturer Extraordinaire
of University of Stellenbosch Business School (USB),
"Stock exchanges and central banks are becoming more active in pursuing
non-financial reporting requirements”. This indicates that diverse ESG issues
are have direct implications on the economic and market.
The focus on climate-related issues are one
of the leading demands in ESG reporting, and with the current pandemic crisis,
the issues revolving public health and infrastructures will very much likely to
take central focus from this point onwards. The Global Reporting Initiative
(GRI) Chief External Affairs Officer highlighted that "As the pandemic focuses the attention
of policymakers on how to achieve resilient and climate-friendly economies, the
importance of measuring the impacts of companies and encouraging sustainable
practices increases. It is positive therefore that both the range and depth of
ESG reporting provisions around the world has grown substantially.”
"Yet questions remain on how to
address gaps, particularly in the context of the SDGs, and improve coordination
to support more consistent disclosure. To address this twin challenge -
spreading the practice of disclosure and driving up the quality -
needs strengthened reporting requirements, for which GRI will play an enabling
role."
As we all are aware, there are growing environmental, social and political pressures around the world that require businesses to play a crucial part to supply innovative and sustainable solutions towards the SDGs or sustainable development in general. The pandemic has also urged companies to amplify transparency and report on how companies address complex supply chain issues and how companies throughout its value chain are responding to the pandemic and other ESG risks such as climate change, as depicted in a special report by AmBank Research firm. The report also said that there is a need for companies to be responsive and most importantly, know the most effective way to respond to these issues now and in the future – and these should all be addressed (on certain level) in the companies’ reports. This would not only assure stakeholders that the companies remains resilient in facing various risks but also understand the accountability when it comes to ESG concerns.
Conclusion
Companies are evaluated and pressured to be
leaders in responsible business while managing ESG issues that are present and
predicted in the future in a holistic manner. This being said, it is expected
for companies to not only demonstrate but also disclose on how they manage and
monitor their ESG risks and opportunities. ESG reporting will need to be
extensive and critical in responding to all material topics that are affiliated
to companies. Hence, it has now come down to bringing renewed attention to the
importance of corporate transparency as well as quality of ESG disclosures.
All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation
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