Environmental, social, and governance metrics have become an increasingly critical piece of business focus, even if initial results point to needed improvements.
By Jordan Flagel
ESG is no longer an acronym that companies take lightly. Environmental, social, and governance metrics have become an increasingly critical business focus. Over 80% of institutional investors demand ESG reporting—and performance—from companies. While more companies are embracing this shift and committing to compiling sustainability reports based on these metrics, there are understandable concerns that unfavorable results may hurt bottom lines. However, disclosing metrics is valuable, regardless of performance, even if areas requiring improvement are revealed along the way. Making a commitment to full disclosure ultimately leads to better ESG outcomes in the future.
Here are three ways in which reporting ESG metrics can help companies achieve their targets.
1. Becoming conscious of reportable metrics leads to better ESG performance.
Knowing your numbers helps you develop and keep your commitments. As your company management becomes aware of reportable metrics, it will be inclined to improve on them.
Companies need measurable metrics to ensure that they can deliver on ESG performance commitments. Consumers, business partners, and investors are now making decisions about which companies to buy from, deal with, and invest in based on reported ESG metrics. So it is essential for companies to tell the truth, the whole truth, and nothing but the truth. This applies to projections and future strategies as much as or even more than to current sustainability performance.
People (including investors) want to know what companies are doing to achieve ESG and net-zero goals. Even if there are no plans in place for improvements, it is important that this be disclosed. Confronting performance-to-commitment gaps should prompt remedial action.
Companies are increasingly being held accountable for failing to meet sustainability targets. It is no longer enough to make proclamations and then figure out how to realize them later. Reporting on current metrics helps firms to refine their strategic plans, recognize areas that need improvement, develop future strategies and set goals accordingly.
2. Ensuring auditability leads to more accountability
Auditability is crucial not just to help the planet, but also to keep ESG goals realistic and attainable.
“Auditability is very important,” says Janet Loduca, SVP, External Affairs and Chief Legal and Sustainability Officer at Pembina Pipelines in Canada. “If you’re making commitments, you need to meet them. Public disclosure helps hold your company accountable to these commitments.” Companies which embrace disclosures and ensure auditability tend to get out in front of potential environmental issues. The awareness that processes and results will be audited is conducive to better performance. Fully auditable disclosures are not yet mandatory or harmonized across all sectors and industries. However, they are essential to a company seeking to improve its sustainability performance as well as attract and retain customers, partners, and investors.
3. Thinking “and” rather than “or” helps identify solutions
Reporting ESG metrics leads to a better assessment of what is working and what needs improvement in a company's environmental, social, and governance policies. Reviewing how these focal areas can be shaped to create mutual benefits is an added benefit that disclosures create. Essentially, this involves identifying “and” solutions rather than “or” solutions, which helps companies to more holistically address climate issues while continuing to strive for business prosperity.
The landscape is shifting. Financial performance and sustainability should not be mutually exclusive. Companies should strive for the best of both worlds. In recent years, utilizing “and” solutions has become increasingly popular—there is no longer a need to choose between profits and planet. Consumers, partners, and investors all want companies that not only talk about ESG but also act on their statements, reporting their progress accurately and transparently, improving along the way.
Companies should strongly invest in setting and reaching ESG goals. Reporting and communicating these targets and performance results will help ensure that they are realized, if not immediately, then eventually.
Do you want to improve your company’s ESG metrics and reporting processes? You’ve come to the right place. The Global Imprint is your one-stop resource for learning more about how to reach your targets and continually improve sustainability performance.