How to communicate performance through ESG disclosures
Companies worldwide are experiencing mounting pressure from investors, regulators, the public and other stakeholders to take environmental, social and governance (ESG) matters seriously. In fact, the number of ESG reporting standards and regulations at a global level has almost doubled in the last 5 years.1 As there are more than 600 ESG reporting provisions currently available worldwide, with many having different interpretations of sustainability, the task of disclosing quality ESG information presents a major challenge for companies.1
The lack of a single, standardised framework for ESG reporting, coupled with low compliance to existing regulation, has unfortunately fuelled the disclosure of misleading and/or inaccurate information.2,3 Numerous international corporations, like Volkswagen and BP, have been exposed for greenwashing4 and a global review conducted by the Competition and Markets Authority (SMA) revealed that 40% of green claims made online by firms could be misleading consumers.5
While greenwashing appears to be rife and particularly problematic, companies are also starting to be exposed for misleading the public about how they treat their people. On International Women’s Day 2022, a day to celebrate the social, cultural, political and economic achievements of women, hundreds of British organisations posted to social media to show their support for the cause.6 However, on Twitter a bot was on the loose, which retweeted their posts but also shared the difference in median hourly pay between men and women at each firm.7 The Gender Pay Gap bot, which had the strapline ‘Deeds not words. Stop posting platitudes. Start fixing the problem’, highlighted the apparent hypocrisy between company posts and gender pay performance.7 In many instances, the gender pay disparity flagged by the bot was shocking, such as 68.6% difference at Ryanair.7 Companies in the public sector were not out of the firing line; Cancer Research UK, for instance, was revealed to have a 30.9% median gender pay gap in 2021.8
Consequently, and unsurprisingly, scepticism is high among investors with regards to ESG claims that companies make. Indeed, research conducted by Edelman in 2021 found that 86% of global investors believe companies exaggerate their ESG performance when disclosing results, and 72% do not think they will live up to their ESG commitments.9 Another recent survey of more than 4,600 individual investors across the UK, US, France and Germany obtained similar findings: 90% of respondents stated that they struggle to trust ESG claims made by businesses at face value.10
How can we rebuild trust and confidence among investors concerning ESG disclosures?
In response to growing calls from international investors for high quality, reliable, transparent and comparable reporting by companies worldwide on ESG issues, the International Financial Reporting Standards (IFRS) Foundation announced the formation of the International Sustainability Standards Board (ISSB) at COP26 in November 2021.11 The ISSB has been tasked with developing a comprehensive global baseline of sustainability-related disclosures standards, providing investors and other capital market participants with the information they need to make informed decisions.11 While a host of reporting standards already exist, there is optimism that the ISSB standards will be widely accepted and adopted – the IFRS sets financial accounting rules that companies in more than 140 countries adhere to, and because the standards build on existing ESG frameworks developed by other sustainability reporting initiatives, such as the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI).1,12 By creating a comprehensive and detailed corporate reporting standards framework, companies will be able to measure and report their ESG performance in a consistent manner.11 Ultimately, it will restore trust and confidence among investors and other key stakeholders in the ESG disclosures that companies make.
It is becoming more pertinent that companies need to transparently disclose their ESG performance to reduce the risk of reputational damage. Adherence to globally accepted standards, such as the GRI and SASB, can help companies to understand and effectively report their ESG performance; the imminent release of ISSB standards is anticipated to significantly ESG reporting worldwide.
At Simply Sustainable, we support an array of international organisations with their sustainability reporting, employing best-practice global standards (e.g., GRI) to ensure their disclosures meet the needs of key stakeholders. If you are looking for support with your sustainability reporting, please contact us using the details below.
3 Carbon Market Watch. EU works to beef up regulations on green claims.
5 UK Government. Global sweep finds 40% of firms’ green claims could be misleading.
7 Personnel Today. International Women’s Day.
8 Civil Society News. Cancer Research UK ‘disappointed’ by widening gender pay gap.
10 Edie. Survey.
11 IFRS. ISSB
12 The Globe and Mail. Is a reporting standard finally on the horizon
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