ESG Reporting: A Look Beyond Regulations
January 24, 2023
Welcome to the ESG era, where businesses, investors, and regulators are all recognizing the need for increased transparency and disclosure when it comes to environmental, social, and governance issues.
The rise in ESG reporting in recent years, has been driven by a number of factors, including increased public awareness of environmental and social issues, increased investor demand for more sustainable investments, and the emergence of new regulations and standards.
In the EU, the European Union's Sustainable Finance Disclosure Regulation (SFDR) is a keystone piece of legislation that has been instrumental in driving the rise in ESG reporting. The SFDR requires all investment firms and advisors to provide investors with accurate and comparable ESG-related information, which has helped to increase the transparency and availability of ESG data.
The U.S. Securities and Exchange Commission (SEC) has proposed amendments that would require investment funds and advisers to provide more detailed disclosures about their environmental, social, and governance (ESG) strategies. The proposed amendments aim to give investors the information they need to understand how a fund or adviser is addressing sustainability issues when selecting investments.
Canada has also implemented regulations on ESG, with the Canadian Securities Administrators (CSA) developing guidelines that are designed to ensure that investors receive clear, meaningful, and balanced disclosure of ESG risks and opportunities. The CSA's objective is to help investors make informed decisions about their investments by requiring issuers to provide disclosure that is specific to their business, operations, and context.
ESG, however, is not just about regulations.
ESG is increasingly becoming a core part of a company's business model, driving not only compliance but also the future success of the business. According to Emrul Hasan, Vice President, Global Programs, at CARE Canada "an ESG plan must be built into the way the organization lives and breathes. This means thinking beyond volunteer days and going paperless. What is your organization’s true carbon footprint — and what are the actionable steps you will take to achieve net zero? Have you done the work to understand your organization’s issues with diversity, equity and inclusion — and made solving them a priority? Have you read the calls to action for the Truth and Reconciliation Commission, and planned to implement them? By answering those questions and by ensuring that ESG considerations are built into the way you do business every day, you will be able to connect ESG to your organization’s performance, and ultimately your bottom line."
In today's competitive economy, ESG reporting is also being seen as a way for companies to differentiate themselves and build and strengthen their brand. "ESG has evolved being a singular priority item for companies, to now being central to business. When done right, ESG goes hand-in-hand with growth strategy. ESG helps build your brand by driving trust among audiences, ultimately helping secure the next generation of customers", explains Amanda McGuire, McDonald's Director of Global Impact and ESG Communications.
Customers are also looking for companies that share their values and prioritize sustainability. They want to see companies taking active steps to reduce their environmental impact, promote social good, and enact governance policies that support ethical and responsible practices. Companies that can demonstrate their commitment to these values will often have an edge over those that do not.
"With each passing year the scope and scale of the environmental, social and economic challenges facing humanity have grown. Whether it’s confronting climate change, ensuring ethical supply chains, advancing gender and racial equality, or navigating an increasingly political global economy, consumers (who are also law makers, tax payers, voters, and employees) are expecting businesses to lean in and take a stand for what is right. Repeated studies show that consumers are inclined to support companies that align with their values, and are increasingly willing to vote with their wallets", according to Tom Chervinsky, TELUS' Head of External Affairs and Social Capitalism, Public Policy.
ESG is also good for your employer brand. Employees are looking for more than just a paycheck; they are looking for meaning and purpose. Companies can meet this need by making clear to employees what their roles are in contributing to society and the environment, and demonstrating that their efforts are making a difference. Companies that do this can create a culture of purpose and engagement that will help them attract and retain talent. "Countless studies have proven over the years that employee engagement is heightened when employees believe they are working for a company that is having a positive impact on society" according to Elizabeth Dove, Director of Humber College's Centre for Social Innovation. She also continues to say that when it comes to ESG practices, "the call to action goes beyond offering employees side-of-the-desk community volunteering and philanthropic giving opportunities. The employee appetite for purpose is drawn to the center of their desks, where their responsibilities and roles in the company's societal commitments are clear and compelling to them".
But the rise of ESG reporting has also led to the rise of "greenwashing". Companies may use greenwashing to make their actions appear more environmentally friendly than they actually are in order to boost their public image and attract more customers. They may also use it to misinform customers and investors, allowing them to hide their true environmental and social impacts.
“In Canada and abroad, ESG reporting is rapidly transitioning from “voluntary” to “mandatory”. With the implementation of mandatory legal ESG reporting requirements, there has been a wave of enforcement activity and litigation which is set to expand, with greenwashing as a continued focus. As such, it has never been more important for communicators to understand the legal risks associated with ESG reporting and disclosure, as well as develop strategies to mitigate these risks", says Conor Chell, Head of the MLT Aikins LLP Environmental, Social, and Governance Practice Group.
Going forward, it is expected that ESG reporting requirements will become increasingly stringent, with more detailed and comprehensive reporting requirements for businesses. Companies will be expected to provide robust disclosure on their ESG performance, and failure to do so could lead to legal action and reputational damage.
Interested in taking your ESG communications strategy to the next level? Attend the first "ESG Communications Summit" in Canada on April 28th in Toronto. This Summit will provide you with the opportunity to learn from ESG experts from TELUS, McDonald's, Citizen Relations, CARE Canada, Prince's Trust Canada, Humber College, and Manulife on how to craft an effective ESG communications strategy and master the trends influencing North American ESG communications.
Tickets for the Summit are available at a discounted rate until January 27th and can be purchased here.