Changes in Reporting
When CSR is increasingly morphing into ESG, business measures such as executive remuneration could also be tied to ESG metrics alongside financial performance.
With the combined drivers of regulatory requirements and financial incentives, integration of sustainability reviews in annual reporting will be the trend and necessity in near future. Therefore, companies will need to ensure they could provide accurate and comprehensive ESG information.
Paul Polman, the former CEO of Unilever, recently wrote in the Harvard Business Review that “investors are increasingly asking companies to report on their sustainability performance. Having a set of standards will greatly improve this dialogue and enable both to better understand the relationship between sustainability and financial performance”.
Attention is drawn from ratings to investment approaches. 97% of investors expect companies provide more sustainability disclosures that are audited and material to financial performance, according to a 2019 McKinsey and Company study.
Accountants are already part of the development of these standards. Bodies like the International Federation of Accountants (IFAC) and International Accounting Standards Board (IASB) are pushing for the creation of consistent global criteria against which ESG claims can be judged.
ESG factors is becoming a fundamental measurement for stakeholders and companies need to show their integration of ESG consideration in business strategy and risk management practices to address their interest.
Failure to demonstrate may damage company’s relationships with key stakeholders, pose risk to company’s brand and market position.
Recent ESG topics that draw the most attention include climate change and social responsibility.
Climate change is our era’s defining issue and the market has already begun to treat environmental issues seriously.
Certain climate change assessments and reporting standards are increasingly being codified as legal requirements, and broader climate change disclosure rules are expected to come into force soon.
As the interest of investors heightens and global environmental deadlines are pushing, ESG reporting will soon be no longer voluntary and regulated ESG reporting is all but inevitable.