Part 1: Corporates ESG Reporting Best Practices
Five key takeaways for Corporates ESG Reporting Best Practices:
Lindsay Patrick, Head of Sustainable Finance, RBC Capital Markets shares her five key takeaways from this session:
Sustainable Finance is of growing societal and business importance.
We are witnessing the rise of inclusive capitalism, centered around two major issues: climate change and socio-economic inclusion, with organizations expected to be more transparent about those issues. Sustainable Finance is an area of growing importance for our clients across all our business units. Whether it is institutional investors looking to integrate ESG factors into investment process, governments looking to access the sustainable finance markets or our corporate clients looking to improve their own sustainability. “By making a positive difference to companies and to our clients, we’re also helping make a positive difference in terms of long-term responsible investing which will help society broadly. The idea is that business can be a force for good when it serves stakeholders including employees, client as well as suppliers and delivers value and wealth creation for all.”said Ben Yeoh, Senior Portfolio Manager, at RBC Global Asset Management.
There is a need for globally accepted sustainability standards amid a confusing landscape.
SASB has created 77 global sustainability standards which aim to provide a common language for companies and investors when they discuss the financial impact of sustainability. “Prior to SASB, the investment community lacked the ability to do a sector overlay and connect material factors to specific industries like they do with traditional sector analysis and portfolio construction,” explained Neil Stewart, Director of Corporate Outreach, Sustainability Accounting Standards Board (SASB). The SASB approach focuses on investors as they need financially material, comparable, consistent metrics to make investment decisions. Standards have to keep evolving to reflect the concerns of the day.
Note: SASB and GRI announced on July 13th announced a collaborative workplan to promote clarity and compatibility. More information can be found here.
The concept of ‘financial materiality’ is important in Sustainable investing.
This means looking for the factors that will impact the financial condition, the operating performance and risk profile of a company over the long term. Ben Yeoh points out examples that will drive business opportunity and risk over the long term including superior products and customer service, innovation, a good corporate culture, as well as a sound relationship with regulators and suppliers.
It is important to understand the difference between frameworks and standards.
Frameworks provide high level guidance about broad topics that should be disclosed - TCFD for instance. Standards like GRI and SASB, on the other hand, provide significantly more detail about what should be reported and are designed using a transparent process. SASB standards provide industry-specific financially material metrics and targets. Frameworks and standards can be used together. For example, SASB standards can be used by companies as a practical tool for implementing the TCFD framework and the CDSB Framework to take the TCFD recommendations from principles to practice.
Authentic narrative reporting is crucial and evidence that the sustainability agenda is part of the overall strategy is critical.
For example, a genuine letter written by the chair of the board or the senior management team explaining ESG practices or targets, revealing their employee engagement score can be a strong signal to stakeholders about the metrics that drive long-term value creation. Sustainability reports should not be an annual event and ESG disclosures should be more timely and frequent. Utilizing other media formats like videos and podcasts would serve to better communicate with investors and other stakeholders on ESG issues that matter most to companies.
