Transitioning from Sustainability to ESG
Sustainability and CSR (corporate social responsibility) reports may have worked in the past but they are not enough to help the stakeholders evaluate the performance of the investment. Greater focus is now on environmental, social, and governance (ESG) issues. Many investments are now directed towards ESG, and there is strong evidence that it is the right choice for businesses.
Recent reports found that there is a continued prevalence of ESG issues across the world investment industry. A new meta-studies have examined the relationship between ESG and corporate financial performance recognise that a business strategy that focuses on ESG issues yields high-quality management and improved returns. The study demonstrated the benefits accrued through the incorporation of ESG information into the investment process. Global financial services predict that with the evolution of language surrounding ESG where new terms are now more prevalent, companies that will continue relying on the term “sustainability” risk being seen as laggards.
Sustainability and CSR reports have been favourites for several businesses for some time. In varying degrees, it has allowed businesses to demonstrate their efforts in supporting environmental protection, fair workplaces practices, and giving back to the community. However, these reports have only provided stakeholders with minimum information on how the company is performing and the impact it has on society.
One major shortcoming of these reports is that they fall short in explaining how environmental, social and governance issues impacted the financial performance of a company. The companies referred to in the GSIA (Global Sustainable Investment Alliance) review as well as others, are now replacing these reports with more quantifiable and relevant frameworks of ESG reporting.
ESG reporting is expected to benefit businesses position in several ways:
ESG reporting gives credibility to companies that report with openness and consistently, on the same note, businesses are held accountable for their impact. With regards to the approaches used in reporting, businesses need to back their discourses with data. While reporting that a company volunteered in a given community is good, a report that shows an increment in the representation of the minority in the business leadership by a given percentage is better, and that is exactly what the stakeholders want to see.
Meeting the needs of stakeholders
Moving from sustainability and CSR reports need businesses to think about what stakeholders look at when making choices; either to invest or patronise their products. This will help a business create goals that will meet these needs.
Goal setting and accountability
ESG reporting holds a business accountable in all aspects; it is not all about meeting the social and environmental needs but also concerns the issues of corporate governance. It focuses on areas where a business may have performed well as well as spheres where it has fallen short. The creation of goals that cover all aspects can help create value for all stakeholders, demonstrating that a business is serious about improving and helping get clarity on opportunities and risks that exist.
The world is changing, where focus on sustainability reporting is being seen as inadequate as it ignores the aspects of corporate governance. It is time for businesses to step in and grow their reporting, move beyond sustainability and CSR and embrace ESG.