The Climate Of Business #120: Overcoming the inevitable challenges of ESG and sustainability reporting

Climate Change Reality

• Lethal heatwave in Sahel worsened by fossil fuel burning, study finds (The Guardian )
• Spanish drought pits tourists against locals in contest for water (Financial Times )
• Deadly Africa heat caused by human-induced warming (BBC )
• Toronto Wants to Manage Storms and Floods—With a Rain Tax (WIRED )
• March 2024 was the hottest ever recorded, reaching 0.73°C above the 1991-2020 March average (World Economic Forum )

• Demand for food is set to increase more than 50% by 2050 (nearly 70% for resource-intensive foods like meat and dairy) (World Research Institute )
• World's coral turns white from deadly ocean heat (BBC )
• Record ocean warming adds to dangers for native fish species, environment chief warns (Financial Times )
• Climate crisis: average world incomes to drop by nearly a fifth by 2050 (The Guardian )

Business Climate Reality

• EU Policy: Use of harmful chemicals growing, agencies find (Euronews )
• European carbon trading catching less than quarter of airline emissions, data finds (Financial Times )
• Biden administration moves to restrict oil and gas leases on 13m acres in Alaska (The Guardian )
• Dubai battles flood waters as historic storm causes chaos (Financial Times )

• Meat plant throws away 1.8 tonnes of food (BBC )
• Environmental Damage Could Cost You a Fifth of Your Income Over the Next 25 Years (WIRED )
• EU Policy: European Parliament approves energy market overhaul (Euronews )
• Just 100 companies are responsible for 70% of the world’s industrial GHG emissions (World Research Institute )
• Plastic-production emissions could triple to one-fifth of Earth’s carbon budget – report (The Guardian )
• The ski resorts saving snow (BBC )

Reality Check

ESG - the acronym that stands for Environment, Social, Governance is an ever-so-important topic within the corporate sustainability landscape at the moment. The term refers to a framework used to measure a business's non-financial performance in environmental, social and governance categories, and is used as a basis for various regulations such as the NFRD , CSRD and the SFDR .?

The growing interest in measuring and ranking ESG by investors and businesses reflects the perspective that environmental, social, and governance dimensions should be factored in when considering business success. As ESG is increasingly recognised as a fundamental factor toward business success, this week’s newsletter provides an overview of the vast array of challenges businesses are facing, along with a number of key actions businesses can take to enable strategic foresight, operational agility, and a strong commitment to transformative practices.

Why is ESG reporting so important for companies??

The critical role of ESG in corporate strategy cannot be emphasised enough, especially considering that 90% of S&P 500 companies now report on ESG matters, showcasing its essential place in contemporary business tactics.

1. Meeting stakeholder expectations: According to the OECD, 83% of consumers expect companies to actively foster ESG best practices. Clear reporting on ESG not only meets this demand but also supports broader calls for corporate accountability and sustainability.
2. Enhancing investor relations: With 89% of investors factoring ESG into their investment choices, detailed ESG disclosures provide the necessary insights for a deeper understanding and trust in a company's long-term potential.
3. Boosting brand reputation: Demonstrating a commitment to ESG principles appeals to the 88% of consumers who are more loyal to companies that champion social and environmental causes, thereby improving brand image significantly.
4. Gaining a competitive edge: With ESG-oriented investments expected to reach €31 trillion ($33.9 trillion) by 2026, leading in ESG initiatives can distinguish companies, making them more attractive to consumers and investors.
5. Reducing non-compliance risk: Effective ESG reporting is vital for identifying and mitigating risks, particularly as climate-related incidents are predicted to cost suppliers $1.3 trillion (€1.2 trillion) by 2026, per a report by the Carbon Disclosure Project (CDP).
6. Securing access to capital: Deloitte reports that with over €16.6 trillion ($18 trillion) in assets managed under ESG-focused funds, companies with robust ESG frameworks are better positioned to attract investments and capital on favourable terms.

Businesses who go beyond reporting to implement thorough decarbonisation will realise even further benefits. Read more here.

5 key challenges of ESG & Sustainability reporting

Although there is a clear momentum towards adopting ESG principles, businesses face multiple obstacles when reporting on ESG performance:

1. Internal barriers: McKinsey reports that about 24% of companies see internal corporate silos as a significant obstacle to ESG implementation. These divisions can obstruct the necessary flow of information and collaboration, which are crucial for a comprehensive ESG strategy.
2. Growth versus ESG commitments: Balancing short-term growth with long-term ESG goals is a complex issue. 40% of leaders struggle to integrate ESG initiatives with their immediate business objectives, highlighting the need for strategies that accommodate both sustainable development and business expansion.
3. Inconsistent reporting standards: A notable 37% of executives report difficulties due to the lack of uniform ESG reporting standards. This disparity makes it challenging to effectively communicate ESG achievements and comply with various expectations.
4. Data and skills shortages: The absence of detailed ESG data, noted by 46% of investors, complicates investment decisions and strategic planning. Additionally, a reported 37% of market participants identify a shortage of skilled ESG personnel as a significant challenge, emphasising the urgent need for specialised knowledge and capabilities in this field.
5. Need for global standards: There is a strong demand, particularly from North American and European investors, for unified global standards and reporting guidelines to create a consistent ESG reporting and assessment framework.

How can companies successfully report on their ESG performance?

Companies may follow these steps for ESG reporting to ensure the process is grounded in accuracy and transparency.

• Goal setting: Define achievable ESG objectives aligning with the company’s strategic direction and stakeholder expectations.
• Materiality assessment: Conduct a thorough materiality assessment to identify which ESG issues are most significant to the company and its stakeholders.
• Stakeholder engagement: Engage with stakeholders to gather insights and perspectives on ESG priorities, enhancing the relevance and focus of the reporting process.
• Data collection: Implement systems for collecting reliable and accurate data across identified material aspects, ensuring comprehensive coverage of ESG performance.
• Analysis and benchmarking: Analyse the collected data to gauge performance against predetermined goals and industry benchmarks, identifying areas of strength and those requiring improvement.
• Integration and disclosure: Integrate findings into corporate reports, ensuring ESG information is presented in a clear, coherent, and accessible manner that meets reporting standards and stakeholder needs.
• Ongoing evaluation: Establish a mechanism for continuous assessment and improvement of the ESG reporting process, adapting to new insights, stakeholder feedback, and evolving best practices.

Interested in learning more? Read Plan A’s comprehensive guide to ESG reporting in 2024 here.

Looking for an all-in-one, automated sustainability management and ESG reporting software? Book a free demo with Plan A today to ensure your company is able to efficiently prepare upcoming ESG reporting requirements, whilst realising the vast competitive potential of implementing sustainability within your business.

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