Companies, governments and global institutions are setting ESG targets to achieve equity, parity and environmental justice. Now that COP 27 is in progress, a brief look at COP 26reminds us of the number of businesses (5,200) pledged to achieve net-zero carbon targets by 2050.
Around 450 investors, banks, and insurers (representing $130 trillion in assets and 40 percent of the world’s private capital) made commitments to create climate-neutral portfolios by 2050 (mentioned in one of the blogs by Mckinsey Sustainability).
Roadmaps for the decarbonization of hard-to-transition industries were planned, which pushed other sectors to follow the path of sustainability.
These pledges demonstrate that ESG performance is essential for the environment and becoming crucial for businesses and their stakeholders. While the pledges are made, how will the stakeholders know the progress made on the commitments? This is where an ESG report comes in handy.
An ESG report is a public-facing document communicating the company’s various ESG effortsand highlights. While companies can be transparent about ESG, it may be relevant forcompanies to understand whether there are any co-benefits of the report. : Some of the co-benefits that companies can have through reporting are:
- To attract potential investors
ESG reporting helps investors make informed decisions while choosing companies. A study by BlackRock on environmentally and socially responsible businesses performed well during the pandemic. - Employee retention and motivation
Instilling a sense of purpose in employees has become a much-needed aspect, especially when the world goes through challenging periods like ‘the great resignation.’ Having a well-formulated ESG strategy can not only lead to attracting and retaining more employees but also help in increasing their productivity and work efficiency. Being a part of environmentally conscious companies gives employees a sense of contributing to a socially and environmentally just world. - A powerful medium
It is the easiest and most powerful way to showcase and highlight the company’s initiatives and achievements. It’s proof that the company is not greenwashing its ESG activities. It is a great medium to communicate with stakeholders and build trust by formally conveying the company’s ESG achievements, progress, and future targets. - Building customers’ trust and relationships
For any organization, customers are the most important asset. As per a survey conducted in 2021, sustainability became an essential factor while purchasing for 60 percent of consumers. - Complying with laws and regulations
An ESG report can help provide government support and ease regulatory pressure. Many countries are including ESG reporting under legal compliance. For example, EU policy requires large “public-interest” companies with more than 500 employees to prepare an annual report of non-financial and diverse information. It should include environmental indicators, employee treatment practices, anti-corruption, bribery, and diversity. In India, the Securities Exchange Board of India (SEBI) has mandated that the top 1000 listed companies submit a comprehensive Business Responsibility and Sustainability Report (BRSR). The BRSR is benchmarked to global reporting frameworks such as GRI, IR, and TCFD. Similar requirements exist in several other countries and many are pondering whether to include such disclosure rules. - Cost reduction
Integrating ESG strategies into a business can directly or indirectly lead to cost savings. For example, reducing energy consumption and switching to renewable energy sources can help cut energy costs. In the case of indirect cost benefits, companies can attain higher profits as a result of better employee performance. As per a study, an effectively executed ESG strategy can help reduce operating costs by up to 60 percent. - Risk mitigation
By addressing environmental issues such as resource depletion and pollution, companies are indirectly presenting their readiness for handling risks. Furthermore, ESG frameworks such as CDP and TCFD help build various environment scenarios making the organization more robust.
To conclude, ESG reports provide transparency to all the stakeholders and allow them to build a sustainably just world. ESG activities have become a non-negotiable task from a nice-to-have one. Reporting ESG activities will lead to long-term social, economic, and environmental development. With this, companies are winning customers, securing investments, and remaining compliant with governing bodies. Overall, ESG Reporting is a transformational wave that could help all the stakeholders reap tangible benefits that were not even thought of earlier.
References:
- https://www.mckinsey.com/capabilities/sustainability/our-insights/sustainability-blog/howbig-business-is-taking-the-lead-on-climate-change
- https://blog.hubspot.com/the-hustle/esg-reporting
- https://incorpadvisory.in/blog/five-benefits-of-esg-reporting-for-businesses/
- https://finance.yahoo.com/news/esg-sustainability-reporting-why-important-190108436.ht
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