Closing the ESG Disclosure Divide: Reporting with Integrity

How to unlock the power of ESG reporting

The topic of ESG has gained traction amongst investors in the last few years and is now at the forefront of the strategies of many organizations. It plays a pivotal role in terms of reporting cadence, helps companies manage risk and improve their relationships with stakeholders and contributes to a more sustainable and responsible business environment.

In a recent PWC investor survey, nearly 80% of investors said that ESG was a crucial factor in their investment decision-making. So, with an investor base that is increasingly using ESG to influence and justify their choice of investments, accurate reporting from businesses is more important than ever.

But how can organizations harness the power of ESG reporting to enhance shareholder value and improve their company's reputation? In our recent webinar, experts from DWF Law and Lumi, Tracey Groves, and Sylvie Harton, explored this topic. Here are the insights and advice they shared during the session.

Remember that ESG reporting is not a checklist

Sustainable business practices should form a central part of how businesses operate. Sustainability shouldn’t simply be something that IROs look to demonstrate on certain days of the year, like on an investor day, market day or near to a reporting deadline. ESG should be pivotal to who businesses are, what they do and why they do it.

By reducing their negative impact on the world through ESG practices, IROs can harness the power of ESG reporting to enhance shareholder value and improve their reputation. To achieve this, identify meaningful and measurable metrics that align with your individual business goals.

As part of the ESG strategy, ESG KPIs should be aligned with your business goals. Whether you choose to look at diversity targets, remuneration incentives or the direct implications of your organization’s carbon footprint, use accurate data and metrics to paint a unique and realistic picture of the impact your organization has. By doing so, organizations can use ESG reporting to enhance their overall reputation and value proposition.

“The sooner we can think about this as impact reporting rather than ESG reporting, the sooner we will unlock the real value and opportunity of what ESG should actually deliver for businesses.”

Tracey Groves, Head of Sustainable Business & ESG Advisory Practice, DWF Law

Aim for progression, not perfection

ESG reporting is more than just showcasing positive outcomes to investors. It requires a degree of humility to acknowledge where improvements need to be made, measuring not just what an organization is doing well at, but also where it falls short. Adjusting the course of action and communicating changes transparently to stakeholders is equally vital.

In essence, ESG reporting is a journey towards progression, not perfection.

When setting ESG targets and KPIs, do not overpromise or over-commit. Third parties such as investors or regulators become nervous when they see overly ambitious targets that aren’t realistic. Instead, set out your ESG roadmap clearly, signposting your aspirations and being truthful about where you are right at that moment.

Although the roadmap may deviate from the initial plan, it is essential to adjust your direction and communicate the changes transparently to stakeholders.

“Having the honesty to expose your baseline drives trust and authenticity in your relationship with stakeholders.”

Sylvie Harton, Chief Business Strategy Officer, Lumi Global

Make trust and transparency your priority

Historically, brand loyalty has always been influenced by the values that customers align with. The same is true of investors and the organizations they choose to invest in - 50% of investors have expressed a willingness to divest from companies that don’t take sufficient action on ESG issues.

When it comes to ESG reporting, often, ESG reports are unregulated and do not form part of the audited financial statements that organizations are required to submit. This leaves room for unsubstantiated claims to be made and is at odds with audited financial reports, which are rooted in assured data and facts.

Ultimately, investors seek congruence and alignment in how you tell the company story. They want to see integrity around matters of ESG backed by verified data. This integrity is what creates trust.

Companies who have excelled in their ESG reporting, such as outdoor clothing brand Patagonia, have done so by integrating their ESG reporting into their ESG strategy and taking a holistic approach, holding their purpose, mission and values at the center of everything they do. Their ESG story is told with honesty and transparency and is driven by their values and beliefs.

The bottom line is, ESG should be human-centric. After all, it epitomizes the role of human judgment, decision-making and the impact people have on the world.

“Trust is an asset. If what we’ve said doesn’t manifest in what we do, the integrity gap appears.”

Tracey Groves, Head of Sustainable Business & ESG Advisory Practice, DWF Law

Wrapping up

For more insights and advice from Sylvie Harton and Tracey Groves on unlocking the power of ESG reporting, watch our latest webinar on demand now.