Reporting on Your Company’s Environmental, Social and Governance Impacts Will Help You Attract Top-Level Investors
How financial institutions gauge investments has changed substantially over the past decade. Purely financial reports are no longer enough to prove your company would make a sound investment. Heavily used in investing circles, ESG (Environmental, Social, Governance) reporting provides a more comprehensive view of how companies and products fit within the global landscape.
In essence, ESG reporting attempts to capture the various risks associated with the potential longevity of the business. Showcasing just how important this reporting has become in the financial sector, the SEC has been developing ESG reporting requirements.
The SEC is still amending their initial regulations and should have these new amendments finalized by the Fall of 2023. SEC Commissioner Jaime Lizarraga stated they would “continue to meet with stakeholders and to receive robust public feedback that informs our economic analysis.” Among the proposed changes are enhanced climate risk disclosures, rules governing ESG-related fund names, categorizing specific strategies, and disclosure for ESG-related funds.
This blog will highlight what ESG reports include, why these are vital to recruiting high-quality investors, and how Environ helps you develop comprehensive ESG reporting.
SEE MORE: Are Your ESG Reports Optimized to Attract Investors?
What are ESG Reports?
Sustainability is top of mind for many organizations when developing their business models and corporate structures. But how can they best gauge the efficacy of previous efforts and strategize for the future? With greater visibility being a huge priority, ESG reporting has become not only a compliance measure but a vital tool for attracting investment.
What is included in Environmental, Social, and Governance reports? While each pillar has a deep set of components that should be included and considered, here is an abbreviated breakdown of what goes into each of the three categories:
- Environmental: This sector is the most relevant to sustainability efforts, focusing on how the company is reducing carbon emissions and actively combating climate change to be a better steward of the environment. ESG goes beyond just on-site emissions. It discusses a company’s emissions caused by its resources and supply chain and its approach to air and water quality, deforestation, and waste management.
- Social: ESG also reports on a company’s social responsibility to improve the lives of its employees and customers. The company’s inclusivity initiatives, employee engagement, and community involvement all play a part. Companies should take active steps towards data protection and privacy on a grander scale and ensure their labor model meets all human rights standards.
- Governance: ESG reports consider how companies protect against corruption to secure reliable investments. They review internal controls, executive compensation, shareholder rights, policies governing bribery and lobbying, and any whistleblower programs.
Typically, ESG scores are assigned through third-party providers based on a set of metrics. The biggest challenge in ESG reporting requirements is that each grading agency still uses its own criteria to gauge commitments, performance, and risks. Currently, the most trusted grading organizations are the Bloomberg ESG Data Services, Sustainalytics ESG Risk Ratings, Dow Jones Sustainability Index Family, and RepRisk.
A few private and public institutions are working on more consistent metrics for ESG reporting requirements. The EU has specific regulations tied to incentives for those providing proper transparency on ESG impacts. In the private sector, the NFDR framework requires minimum information regarding a company’s business model, outcomes of its policies, principal risks, and non-financial KPIs. As we mentioned, the SEC is also looking to become a leader in ESG reporting and create a clear framework within the United States.
Why is this Information Important to Investors?
A concrete ESG reporting plan is vital to attracting a wide range of investors. Very few firms focus only on financials; instead, they look for ethical companies that will stand out to the public and attract further financing and investors. ESG reports that quantify these seemingly intangible factors help investors screen companies to ensure they align with their values when it comes to sustainability, social consciousness, and corruption avoidance.
Sustainability, in particular, has been a massive priority for years now. A Morgan Stanley study from 2021 found that 99% of millennials would consider a company’s environmental and social impacts before investing. Even more recently, a KPMG study showed that 80% of N100 firms now report on sustainability, showing the demand for a global framework for ESG reporting requirements.
There are an estimated $130 trillion in assets managed by companies disclosing climate risks and over 5000 signatories to the UN Principles for Responsible Investment, representing more than $121 trillion as of June 2022. The SEC is finalizing its rules to make it easier for funds to consider ESG factors in decision-making and force advisers to stand behind their ESG claims. By embracing ESG reporting now, it’ll be easier to meet current and future frameworks to attract these environmentally conscious investors.
How Can Environ Help You With Your ESG Reporting Requirements?
Environ is a leading energy consultant committed to delivering the best ESG reporting available. This past year it bolstered its sustainability and compliance services with two key acquisitions: Scope 5 and ISOS Group. Both companies will remain as subdivisions within Environ to help it meet its client’s energy goals.
Scope 5 transformed the industry with the first user-accessible carbon tracking platform and now serves clients in over 60 countries. With Scope 5’s cutting-edge software, enterprises can analyze their carbon emission and integrate greenhouse gas analysis to generate carbon, energy, and sustainability metrics vital to ESG reporting. Scope 5 prioritizes data integrity and transparency, visual analytics, and streamlined reports based on various industry frameworks.
Environ also acquired ISOS Group, a top ESG service provider. Not only does the company make it easy to meet ESG investor disclosure requirements, but it aids enterprises in strategic development, assurance & verification, additional sustainability reporting, and training. Many internationally recognized brands and Fortune 500 companies use ISOS Group’s ESG services, but they also help emerging companies seeking ESG services for the first time. Are you interested in enhancing the ESG reporting at your business? Not only will we compile comprehensive reports, but our team of experts will ensure they’re in line with the industry’s best practices. Don’t hesitate to reach out by calling or filling out our contact form; we’d love to hear from you!