The New Wave of Industry ESG Adoption
By Isha Choudhury
According to a survey by NAVEX Global, 88% of public traded companies, 79% of PE/VC backed companies, and 67% of privately owned companies had ESG initiatives in place in 2020. Companies globally are increasing their ESG initiatives incentivized by investor and customer demands. Companies that lack ESG reporting are losing out. Why so? 76% of consumers have asserted that they will stop buying from companies that neglect and mistreat the environment, employees, or community. For businesses to survive, ESG compliance and improvement have become essential.
According to Deloitte, the top five ways institutional investors implement ESG information are the following: ESG integration, Negative Screens, Active Ownership, Best Class Strategies, and Impact Investing. However, the lack of standardized investor grade information often prevents them from efficiently evaluating and integrating ESG information in the decision-making process. The lack of uniform reporting mechanisms and standardized ESG data may deter investors from adopting ESG reporting. What do investors do when they don't have enough ESG data? They simply ignore ESG, an unfortunate decision, as incorrect or absent data can incur greater legal and financial risk.
To reduce the ambiguity in ESG reporting, the World Economic Forum along with the Big Four professional services networks have identified a set of universal disclosures called Stakeholder Capitalism Metrics. During the Sustainable Development Impact Summit 2021, the World Economic Forum announced that over 50 companies have begun including the new ESG reporting standards. Although these new ESG reporting metrics promote alignment and comparable data points, they pose a new problem: unlearning or replacing previously adopted ESG reporting standards like SASB (used by 72% of public companies), GRI, and TCD. Given these diverse standards, investors ask how they can ensure companies align with their ESG goals and make an impact?
Mandatory Public Reporting – Companies should be bound by public reporting of their ESG impact, with clear metrics. This data has to disclose their ESG metrics comprehensively and transparently. The newly formed Stakeholder Capitalism Metrics can be instrumental to achieving this. They are easier to understand, and cover all important ESG domains. Since January 2021, more than 120 companies have adopted Stakeholder Capitalism and ESG reporting.
Accountability – A simple commitment to an ESG goal is not enough. Companies and business leaders need to be held accountable for their actions. Customers, investors, and employees need to assert their power and engage with only those companies which meet their ESG commitments. Investors can hold companies accountable by only investing in compliant companies. In the last few years, increasing importance has been assigned to preparing ESG reports by companies seeking investments.
B-Corp Certifications - A Benefit Corporation certification recognizes companies that meet the highest standards of performance in their environment and social commitments. Currently, more than 4000 certified B Corps have been recognized for their commitment to social impact. These companies demonstrate how they produce public benefit, driving investor and customer attention. Having a B-Corp certification helps build the reputation of an impact leader.
Ultimately, ESG represents a commitment to making a company more socially beneficial and demonstrating its efforts to make the world more habitable. High ESG ratings have emerged as a brand strengthener which attracts positive interest from investors and consumers. As a result, more companies are riding the wave of ESG to increase their sustainability and improve their business results.
At Global Imprint, we’re here to help you when you are ready to develop your ESG strategies and reporting processes. Reach out to our team to set up an introductory call or complete our ESG Readiness Survey to get your ESG baseline.