David Wallace, Founding Partner at A1, reflects on ESG (Environmental, Social, Governance) reporting and the importance of setting and achieving goals.
The 27th United Nations Climate Change conference, otherwise known as COP27 took place in November. The key focus of this year was action and collaboration as governments and businesses seek solutions for countries to combat climate change, reduce emissions and secure technical support for future challenges.
In order to achieve these goals, both countries and organisations have made pledges towards reaching net zero by 2050. Whilst these declarations are well-intended, the only way to achieve this goal is by undertaking meaningful action. With this in mind, COP27 reminds us why ESG (Environmental, Social, and Governance) is an important part of creating change and why it is imperative to the alternative investment sector and our reporting standards.
ESG reporting enables organisations to be able to communicate their performance with regards to the criteria that sit under either the environmental, social, and governance pillars of ESG. The capacity to be able to show this performance means that companies can strategise to improve on that performance in order to meet their net zero targets and ESG goals. It also supports investors to make informed decisions about a business’s ESG practices.
Until recently, there had been a lack of standardised ESG reporting within the financial services industry, which in turn was one of the biggest threats towards effective reporting and disclosure. In 2021, online publication ESG Clarity reported that ‘businesses are using up to 14 different frameworks to report on their ESG credentials’. This kind of variation made it difficult for stakeholders and investors to make comparisons based on “like for like” when it came to company disclosure.
In KPMG’s Survey of Sustainability Reporting 2022 titled ‘Big Shifts, Small Steps’, approximately 66% of the G250 (the world’s top 250 companies) believe that climate change is a business risk. The report goes on to share that 96% of the 250 companies report on sustainability. However, without standardised reporting, it is difficult to truly measure how firms intend to achieve their sustainable goals.
There was however progress during COP26 in 2022, when the formation of the International Sustainability Standards Board (ISSB) was announced. It was created by the International Financial Reporting Standards (IFRS) Foundation in an effort to create a standardised list of ESG reporting criteria. Throughout 2022, the ISSB worked on putting together this list and in October 2022, the ISSB met to discuss the following proposals:Disclosure of Sustainability-related Financial Information (“Draft S1”) and Climate-related Disclosures (“Draft S2”). Whilst this is a US led initiative, the hope is that this will provide the framework for global reporting moving forward.
As the financial world moves towards achieving climate goals, having adequate ESG reporting will be vital for success. The bar for ESG reporting is definitely being raised and consequently, firms need to keep pace with the change to avoid missing out on new opportunities.
A key focus for AlternitOne in 2023 will be to support clients with their ESG goals and to help them to design and build ESG reporting infrastructure that is simple and easy to manage and enables them to effectively report on these credentials.