April 10 2023
There’s no time to postpone establishing the necessary structures for proper ESG reporting. Capital markets demand essential non-financial information to make informed investment decisions, your biggest clients are under pressure to report on sustainability data from their suppliers – i.e. your company‘s data! – and the legislative requirements are getting stricter by the minute.
Investors are becoming increasingly eager for sustainability data, and it is vital that companies establish appropriate sustainability reporting structures to secure access to any form of financing for their company. The pressure from capital markets is significant, with ESG assets under management worldwide increasing by around 150% from 2014 to 2020. This is expected to account for more than one-third of all assets under management in 2025.
Climate change is the defining discourse of our time, and younger generations are increasingly making investments in the sustainable transformation of the economy. Companies that have established structures to eliminate child or forced labor, contribute little to climate change, and are less vulnerable to its consequences represent a lower investment risk.
Even small and mid-cap companies not yet required to report on sustainability are affected by the same factors that apply to large companies today. If a company at the top of the supply chain is unable to provide information, it faces the threat of a lower sustainability rating, making financing via the capital markets more difficult. As a result, small companies may lose business relationships with their most important clients.
Thus, it is crucial for companies, regardless of their size, to establish the structures for effective and transparent ESG reporting as soon as possible to avoid losing business relationships with their most important clients.
In addition to pressure from the capital market and business partners within the value chain, stricter legislative requirements are the third major factor for companies to finally establish their ESG reporting structures. In Europe, this is especially true, as the European Union is pushing ahead with several directives that expand reporting requirements. First and foremost,
the Corporate Sustainability Reporting Directive (CSRD) will extend the reporting obligations from currently 11,700 to 50,000 companies.
In addition, there will be stricter rules on HOW companies have to prepare their reports in the form of the European Sustainability Reporting Standards (ESRS). It is important for companies to familiarize themselves with existing frameworks before the ESRS are introduced, as the ESRS will build on existing standards for the largest part. One of the most commonly used frameworks in ESG reporting today are the standards by the Global Reporting Initiative (GRI). Due to their extensiveness and granularity, the GRI standards best prepare issuers for the future requirements under ESRS.
An important step towards improving your ESG reporting is looking at best-practice examples. In that regard, the Global ESG Monitor provides helpful data based on the analysis of ESG reports from 350 companies worldwide. Via its proprietary methodology, the GEM Assay™, the Global ESG Monitor assesses the transparency in ESG reporting. The table below shows the highest scoring companies in 2022. If you want to find out about the various ways in which you can use the Global ESG Monitor to improve your ESG reporting, feel free to contact us.
Companies can no longer afford to hit the snooze button on ESG reporting. The pressure from all stakeholder groups is immense, and the march to proper ESG reporting is a long one. However, it is fundamental to secure the future viability of your company.
