Who reads your ESG Report? …a perspective of the SDGs from the Investor and Business Lens

ESG Reporting is also know as Sustainability Report as highlighted in my previous article hence the words will be used interchangeably.

?Recently, fresh awareness to the field of Sustainability has drawn a lot of interest especially in the financial sector. ?It is not enough to publish an ESG report but determining your readership is also very important, with this, your content can align to meet or surpass their expectations.

?There are about five basic groups in, or closely related to, the financial services sector that may be interested in a company’s SDGs strategy and performance. It is useful to recognize and differentiate between these five groups and their different information needs, which, among others, are dependent on the investment strategy and level of SDG-related engagement of the investors. This section aims to give a high-level overview of the different key players in the investment chain and their interaction with reporting companies.

“The globally-agreed SDGs are an articulation of the world’s most pressing environmental, social and economic issues and as such should be taken into account as part of an investor’s fiduciary duty." The SDG Investment Case, PRI, 2017?

The following are categories of actors in the investment community that would likely be interested in SDG-related information about businesses:

1. Financial Analysts who work for asset managers and help portfolio managers conduct research

2. Portfolio Managers who work for asset managers and preside over stock selection and portfolio construction. These include sustainability specialists who manage exclusion and screening activities, as well as those constructing rule-based portfolios

3. Sell-side Analysts who work for brokerage houses and provide research to asset managers looking to invest or disinvest in particular stocks or sectors

4. Data service Providers that provide research and data on financial, ESG and SDG-related performance to investors

5. Governments and Regulators that oversee the financial stability of the economy and, in the case of the Governments, also the sustainability of the social and natural environment of a given country or region. As National Development Plans also make a reference to the SDGs, Governments will be seeking to align the private sector contribution to national priorities. Other key governance players are also helping to create a conducive environment for sustainable finance and responsible business conduct. A stock exchange can play a vital intermediary role, ensuring that investors have the necessary information to invest in their market.

SDG Information is the focus of this article. Below highlights how Investors use SDG-related information:

??????1. Screening portfolios against business risks and SDG-related criteria – norms-based approach, identifying best in class, expecting certain impact, scope

??????2. Integrating information about (potential) business impacts on the SDGs into investment decisions by adjusting risk/return calculations for individual stocks

??????3. In engagement activities and strategies to improve corporate performance and reduce negative impact

??????Participants in each part of the investment chain may use any combination of the above. In each instance, users of SDG-related disclosures will have a need for information across a wide range of corporate policies, processes, and activities.

Having establishing some facts thus far, it will be expedient to share the 4 Cs of a Sustainability Report>>> Concise, Consistent, Current, Comparable

Concise: Simply put keep it simple. Concise reporting focuses on the priorities and most material information, and avoids clutter and information overload.

Consistent: Maintain a framework and style of reporting. Consistency provides the ability to assess performance trends over time; it enables managing and understanding the insights delivered by the reported data

Current: Nothing puts a reader off like obsolete information. Most useful sustainability information presents a window that gives insights into the operations, impacts and potential of business opportunities, rather than a rear-view mirror showing what happened in the past. It just has to be served fresh.

Comparable: Comparability allows information users to benchmark performance against peers. It enables businesses to track and assess their impacts, and then make decisions that will improve these over time.

For ESG reporting to be effective, data needs to be concise, consistent, current and comparable. The use of established international reporting standards lends a helping hand to achieve this.

There have been a lot of gap in the ESG reporting as professionals from divergent disciplines in Environment, Social and Governance fuse ideologies and expertise. I will narrow down my analysis between two broad divides; the Investors and Reporters on SDGs.

How can investors and reporters align to ensure the success of their engagement efforts?

???The implementation of the dialogue between reporters and investors needs to be fostered by a clear shared understanding of the SDG-related opportunities and challenges at hand

???The resources invested in the engagement must be matched to the scale of the initiative;

???Investors should share with reporters a clear understanding of the ground rules to evaluate the success of their engagement as well as to share results

???Regular communication should be implemented between the responsible investment specialists and the business reporters - through group calls, meetings, road shows and other channels

???Investors need to ensure they understand any trade-offs necessary in the short term to achieve desired long-term impacts and also potential long-term negative impacts and the costs of their avoidance Understanding how investors use information to inform their decision making should support companies to make their disclosures more relevant and to attract the kinds of investors they seek. Long-term investment will in turn support company objectives and help drive more real-world impact through aligned goals.

It will interest you that Investors are fully aware that not all 17 SDGs will be equally relevant to all companies, and they do not want boilerplate disclosure across all 17 areas. SDG reporting outputs should note the relevance of the Goals to the business and, where available, the implications for business strategy and financial performance. A good narrative will qualitatively discuss how the company’s SDG-related activities, output outcomes and impacts affect the primary value drivers of the business.?

Sustainability reporting is an emerging concerns hence growth from both on the demand and the supply side, ensuring data is used and that it addresses investor needs is crucial. This article has hopefully provided few insights that can further the level of corporate reporting by showing how the SDGs can be used to communicate the impacts that businesses have on SDG targets and what risks and opportunities exist for business.

The great drive and support from organizations like GRI, PRI, UN Global Compact but to mention a few, companies and the investment community should continue to work and learn together to advance the maturity and best practice of corporate sustainability reporting in support of the SDGs.

At the end of the day, this will allow the private sector and investment community to significantly contribute to the 2030 Agenda while opening up a plethora of opportunities that companies and investors – and ultimately all of society – can benefit from.

References: ForhowcompaniesshouldprioritizetheSDGstoactandreporton,pleaseseetheguidance“IntegratingtheSDGsintocorporatereporting:A Practical Guide”?

Formoredetails,pleaseseetheUNGlobalCompactActionPlatformonFinancialInnovationfortheSDGs.https://www.unglobalcompact.org/take- action/action/financial-innovation.?

PRI’swebsiteliststhemostnotableinvestor-ledSDGinitiatives.