ESG reporting should be the norm not the exception
There are many good reasons for companies, both small and large, to improve their ESG reporting practices – not least being financial and commercial benefits, says Nick Rose.
It is no surprise that Environmental, Social and Governance (ESG) reporting is becoming more commonplace in investor relations. With growing interest in sustainable business and a flood of ethical corporate issues, stakeholders are increasingly keen to know more about a business than just its financial position. There is now a general acceptance by companies that off-balance sheet information is of equal importance in helping people understand a company’s performance.
Earlier this year, we saw Legal and General take a stance on climate change. The company, which manages a staggering £900 billion in funds has now started divesting from companies it says are ‘climate laggards’.
However, it is not just climate concerns that can damage a company’s reputation. We are witnessing a rise in expectations from millennials wanting to see companies putting purpose before profit. Whether you are keen to attract them as customers or as employees, communicating your values helps them create a connection with your organisation. It is a connection that can be lucrative – our latest research showed that only 16% of respondents were very likely to continue to use products and services from a company that didn’t communicate their corporate values.
There is more, too. Against the oft-quoted fact that there are more CEOs in the FTSE 100 named John than there are women, and the media attention surrounding the gender pay gap, stakeholders of all levels are – quite rightly – more aware of the diversity of your company.
It is vital that all your communications reflect and inform on these issues. Beyond communicating to stakeholder groups, the more immediate business benefit is attracting capital with preferential credit rates. Sustainability loans and credit facilities are gaining traction, providing a direct incentive for companies to improve ESG through lower credit costs. Generali, CMS Energy and Danone amongst others have each entered into deals of over $1 billion where improved sustainability performance can lower their interest rates.
Clearly, whether you are trying to attract investors, employees or customers, you need a well-defined approach to ESG reporting. The key data and the reporting against the Global Reporting Initiatives and Sustainable Development Goals remains an essential part of the reporting process (though should be included in a separate report or be available online). Remember, too, do not make this a box-ticking exercise, be open and transparent and embed the commentary throughout to create a truly authentic report.
It might be tempting to view ESG reporting as an add-on, but we believe there is infinitely more value in integrating ESG commentary into the main annual report and the overall corporate narrative. Full incorporation will take time, but if we are bold enough soon there will be no such thing as ‘responsible investing’, it will simply be ‘investing’.
Nick Rose is head of reporting communications at FleishmanHillard Fishburn.
Published 5 November, 2018