It is widely recognised that Environmental, Social, and Governance (ESG) topics are financially material, leading to a growing number of investors incorporating ESG considerations into their investment decisions. According to the latest Morningstar data, assets under management in funds adhering to ESG principles have now surpassed $2 trillion, marking a significant milestone. Additionally, 91% of investors affirm that non-financial performance is critical to decision-making. 

Investor interest in ESG-related topics shows no signs of slowing down. In this context, having credible, investor-facing information on your company’s management of ESG risks and opportunities has become more essential than ever. 

Based on our extensive experience, here are 6 practical steps to enhance your ESG performance: 

1. Integrate ESG into your business strategy

Investors are increasingly focused on understanding how companies respond to macroeconomic trends, identify ESG risks and opportunities, and position themselves for long-term success. However, only 30% of Europe’s largest listed companies comprehensively disclose their business’s sustainability and climate-related impacts. 

Leading companies embed ESG factors into their overall business strategy, while laggards may still view ESG solely through the lens of corporate responsibility or sustainability reporting. To gain investor trust, ESG should be integrated across your business model, reflecting how these factors impact key business decisions. 

2. Identify your material topics

Businesses today must track a wide range of ESG issues. Given the breadth of stakeholders and variety of topics, it is crucial to focus on the issues that are most material to your business and sector. Investors, and stakeholders in general, value relevance over volume. 

A materiality assessment is a key tool for identifying a company’s most significant ESG topics. If you’re unsure where to begin your sustainability journey, this assessment is the ideal starting point. 

Materiality assessments have evolved over time. Businesses may conduct an impact materiality assessment using Global Reporting Standards to understand their impact on the environment and society. Alternatively, they might focus on financial materiality, examining how sustainability risks and opportunities affect the business. Companies driven by the EU Corporate Sustainability Reporting Standards often undertake a double materiality approach, addressing both perspectives. 

Regardless of the method, the process—grounded in thorough research and stakeholder engagement—helps identify a company’s most pressing sustainability issues, making it easier to address key ESG priorities. 

3. Understand your ESG ratings

Both private and institutional investors consistently look at ESG ratings to inform their decision-making. Recent research indicates that over 70% of institutional investors review ESG ratings at least weekly. Moreover, companies with high ESG ratings often see a 15% increase in investment and a 10% reduction in capital costs. 

To capitalise on this, it is essential to develop an ESG ratings strategy. Engage with ratings agencies and review their reports to analyse specific E, S, and G scores, identifying areas for improvement. This proactive approach helps enhance and communicate the aspects most critical to investors. 

4. Align with global & regulatory frameworks

Since 2000, ESG disclosure requirements have surged, driven by both mandatory and voluntary reporting initiatives. While a unified global standard remains a work in progress, mandatory standards like the EU Corporate Sustainability Reporting Standards (CSRD) and the upcoming UK Sustainability Reporting Standards (UK SRS) are beginning to consolidate various sustainability requirements. 

Meanwhile, voluntary frameworks such as the Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI) continue to lead the way in general ESG reporting, while the Task Force on Climate-related Financial Disclosures (TCFD)‘s goal is to improve and increase the reporting of climate-related financial information to help investors, lenders, insurers, and other stakeholders make better-informed decisions. 

Aligning with these frameworks provides consistency, comparability, and reliability for investors. Companies find that adhering to recognised frameworks not only improves their strategic approach but also helps shape their narrative in a way that resonates with stakeholders. 

5. Strive for ‘Investment Grade’ data

Investors increasingly expect ESG information to be accurate, consistent, clear, and comparable. The London Stock Exchange (LSE) has identified 7 characteristics of ‘investment grade’ data, which all companies should aim to achieve: 

• Accuracy: Employ rigorous data collection and validation systems. 

• Boundaries: Ensure data aligns with fiscal years and ownership structures. 

• Comparability & consistency: Use globally recognised standards. 

• Data provision: Offer both raw and normalised data. 

• Timeliness: Synchronise ESG data with annual reporting cycles. 

• External assurance: Consider having key data externally assured. 

• Balance: Present both positive and negative information to maintain credibility. 

6. Choose the right communication channels

Whether you decide to include ESG information in an annual report, integrated report, or stand-alone sustainability report, each format involves trade-offs between breadth and depth. However, these options are not mutually exclusive. Many organisations successfully use a combination of these channels to create a comprehensive ESG narrative. 

Remember, reporting should be part of a broader dialogue with investors. Consistent and clear communication across channels will help build trust and long-term relationships. 

For further practical guidance on enhancing your ESG performance, click here to talk to one of our experts.