Reprinted from GreenFin Weekly, a free weekly publication. Subscribe right here.
Environmental, social and governance (ESG) reporting is going through an id disaster. Whereas reporting itself as a observe in disclosure has expanded dramatically world wide — 80 p.c of firms globally report on sustainability — what goes within the report continues to be strikingly disparate throughout the board.
But, 2021 is poised to convey basic adjustments to the first viewers that voluntary ESG reporting serves and what it ought to embody. Propelled by a crescendo of occasions, together with heightened demand from buyers, decided strain from BlackRock’s prolific and influential CEO Larry Fink and political headwinds from a brand new ESG-friendly U.S. authorities, voluntary disclosure is headed for some purposeful shifts.
Let’s start with reporting’s new, most significance viewers: Buyers.
As calls for for ESG dangers and influence get louder, firms are beginning to pivot to an investor-first strategy to reporting. Think about media large Verizon, which final yr utterly overhauled its report to steer with audited information (quantitative and qualitative) throughout its ESG applications. For the primary time, Verizon additionally led its report with its governance efforts, signaling an essential shift in priorities and acknowledging buyers’ demand for details about its board range, danger administration insurance policies, ESG oversight and different issues.
2021 is poised to convey basic adjustments to the first viewers that voluntary ESG reporting serves and what it ought to embody.
An inherent a part of reaching this viewers is successfully assembly the factors of the assorted ESG scores companies — greater than 600 organizations and rising — that buyers use to guage and examine firms. This usually means catering to bots and synthetic intelligence features which are normally the primary to scan stories and web sites for ESG information in an effort to spit out scorecards and funding analyses.
For a lot of firms, disclosure technique has morphed to a kitchen-sink strategy: placing each attainable sought-after piece of content material and information between the report’s back and front covers. The consequence: A single supply of fact however an amazing, unwieldy doc whose objective usually is poorly understood by inside audiences. Company reporters appear caught in a tug of conflict between satisfying the disclosure wants of the capital markets and defending the encyclopedic size of the publication to inside advertising departments.
Even CEOs who fondly consider the report as a reputable platform to inform their story of influence, balk on the sheer size of the report underneath this strategy. Therefore, an id disaster.
So, how are efficient reporters beginning to remedy this? I see three major developments:
First, there’s the necessity to make information helpful and usable.
Whereas the demand for helpful ESG information has been the topic of some debate given its voluntary nature, the dialog is decisively beginning to shift towards materials disclosure guided by a core set of frameworks, mostly CDP, SASB and TCFD. For firms similar to Micron, which has steadily developed its reporting over time, this battle is slowly drawing to a conclusion as buyers develop into savvier in understanding the connection between monetary and non-financial ESG dangers, and firms develop into extra proactive in speaking them.
“If a problem is essential to buyers, they need to spotlight it, ask questions and interact in ongoing dialogue,” Marshall Chase, Micron’s director of sustainability, defined to me by way of e-mail. “Micron started offering sustainability stories over 5 years in the past, and we now embrace ESG info in our earnings calls to focus on essential areas. We see a rising variety of buyers utilizing this info and contacting us to debate their precedence matters — most steadily local weather change and variety, equality and inclusion.”
Let’s deal with usefulness: For buyers, it begins with accessible information. Very tactically, which means with the ability to see comparable information by way of graphic visualizations and tables. For these trying to inform a extra qualitative story, supplemental infographics and interactive visuals should do the job.
This deal with usability has been on the forefront of Basic Motors’ strategy to ESG reporting. Its 2019 sustainability report, for instance, includes a menu of hyperlinks to a complete information useful resource and all reporting frameworks from each web page of its digital report. The automotive large, which simply final week introduced its industry-leading choice to pursue an all-electric future and promote solely zero-emissions autos by 2035, takes a decidedly complete strategy to its report, serving as a single supply of public disclosure to assist a myriad of ESG scores and rankings.
Or take into account Waste Administration and MetLife, each of which debuted new digital ESG useful resource hubs of their newest reporting cycles to resolve for searchability, ease of entry and demonstration of comparable year-over-year information. Anticipate this strategy to proceed as each firms evolve the robustness and comparability of their information.
Second, let’s take a look at how the forms of information and disclosure is shifting.
In 2020, style firm PVH, whose manufacturers embrace Tommy Hilfiger and Calvin Klein, devoted over half of its 2019 company accountability report back to efficiency information, spanning a bunch of ESG indicators. It additionally included for the primary time information on points similar to “worker range by retailer and warehouse stage,” “worker turnover information” and “residing wages on the manufacturing unit stage” — an acknowledgment of the rising calls for by buyers for higher insights into human capital administration, world operations, dangers and mitigation efforts.
To assist buyers see how firms are connecting intent, motion and efficiency, some reporters have began offering benchmarks towards their information, in flip serving to elevate its relevance. For instance, MetLife, in its 2019 sustainability report, disclosed its range (gender and ethnicity) information towards key industry benchmarks by Deloitte and McKinsey. Offering this comparative lens allowed MetLife to reveal the way it was measuring progress towards others and the way it’s utilizing information analytics to outline its efforts — useful to buyers of their matchmaking between worth and worth.
Lastly, let’s take a look at how a content material technique helps stories higher interact various audiences.
As stories pivot to develop into investor-first paperwork, firms will probably be well-served to stability them with participating storytelling — with the working phrase being “participating.” Efficient reporters ought to strategy their report nearly as a content material suite, a set of parts that may fulfill the various audiences of the fashionable ESG report. That requires treating every stakeholder set as a singular viewers group and respecting their distinctly completely different calls for from firms.
For buyers, ESG information facilities make information simple to entry and helpful; for workers, digital storytelling is available in play; and for shoppers, social media, promoting and product labeling can develop into more practical autos to showcase transparency and allow conduct change.
Buyers ought to count on ESG stories to ship information in a extra significant method, together with extra widespread use of the TCFD and SASB frameworks to information the disclosure. Raters and rankers ought to look forward to finding this yr’s stories simpler to entry and searchable for his or her bots. And a few firms ought to start seeing the outcomes of adopting a content material technique that prioritizes content material supply in response to viewers wants.