SLCP & ESG Part 1: Navigating the ESG landscape
Navigating ESG Reporting: Insights and Challenges
Environmental, Social, and Governance (ESG) considerations are at the forefront of investor decision-making, international and national politics, corporate discourse and news coverage. Be it a global clothing brand, a financial powerhouse, or a major player in infrastructure, ESG considerations touch every sector. The rapid evolution of ESG has triggered a wide spectrum of opinions, with some stakeholders strongly advocating for mandatory ESG-reporting while others outright rejecting it.
This contrast has led to a complicated landscape, making it challenging to fully understand the potential and intricacies of the issues. Nevertheless, navigating this complex ecosystem has become a critical requirement for organizations striving to establish comprehensive ESG reporting structures and meet mandatory legal requirements.
This three-part briefing series aims to educate all our stakeholders on the existing and emerging themes in ESG reporting, and outline how SLCP data can contribute to accurate and robust ESG disclosures and reporting.
How ESG addresses corporate responsibility
ESG developments are driven by the growing recognition and concerns over the environmental and societal implications of corporate activities – Ranging from pollution, and carbon emissions to fair labor practices or ethical sourcing. In addition, the growing ESG landscape aims to highlight the non-financial impacts and, in turn, the responsibility of companies. Investors and consumers are also showing greater interest in investments that align with both financial returns and sustainability, driving the demand for data, transparency, and accountability.
The Covid effect
A reason for increased interest in ESG is partially due to the COVID-19 pandemic. During this time, companies were exposed to various weaknesses in their global supply chains, including disruptions in labor markets and a lack of transparency in social impacts of companies. Consequently, ESG measures that focus on fair labor practices, social equality, and responsible governance are crucial in understanding and ultimately overcoming these global challenges.
Guided by initiatives like the Sustainable Development Goals (SDGs), the international community stands as a key driver in uniting resources and fostering cross-sector partnerships to implement impactful ESG measures on a global scale. Despite advancements in ESG policies, several labor and social challenges persist, including issues of income disparity, gender-based wage inequalities, discrimination, forced labor, or hazardous working conditions.
Moving to a unified international approach
Comprehending and navigating this intricate landscape has become essential for organizations aiming to develop robust ESG reporting frameworks. Nonetheless, identifying the most appropriate metrics from the range of existing reporting frameworks can be challenging and time-consuming. With the rising role of regulation, using globally applicable industry tools like SLCP’s CAF will be critical in collecting verifiable and specific data points that can be used for broader regulatory disclosures.
Responding to the increasing demand, a variety of internationally recognized standards such as the Global Reporting Initiative Standards (GRI), the Sustainability Accounting Standards Board (SASB) have updated their industry standards. In addition, the two newly issued IFRS Sustainability Disclosure Standards and the Task Force on Climate-related Financial Disclosures (TCFD) have been developed. These voluntary standards exist within the well-established frameworks set out by the Organization for Economic Cooperation and Development (OECD) and the United Nations Guiding Principles on Business and Human Rights (UNGP).
While recent efforts have been made by the International Sustainability Standards Board (ISSB), the European Commission and the European Financial Reporting Advisory Group (EFRAG) to enhance the interoperability of the ISSB Standards and the European Sustainability Reporting Standards (ESRS), the absence of a cohesive global ESG framework has led to discrepancies in reporting methodologies. This has led to inconsistencies and challenges when trying to compare industry-wide data, exacerbated by the voluntary nature of these standards and guidelines.
To address this issue, industry leaders including SLCP, along with companies and advocacy groups are advocating for a more unified approach to ESG reporting standards. The key objective is to establish a universally accepted set of principles that can serve as a common benchmark for companies to transparently report their ESG performance. Such an approach would not only streamline the reporting process but also provide clarity for organizations such as SLCP to ensure the CAF tool is collecting the appropriate data points for credible, specific, and relevant disclosures. This will also foster improved decision-making for investors and stakeholders, bolstering trust and credibility within the ESG reporting landscape.
Driving effective risk management
ESG integration has proven to be more than just a compliance measure, but also an effective tool for risk management. By integrating ESG considerations into their operations, companies can proactively identify potential risks, including environmental vulnerabilities, supply chain disruptions, and social or human rights issues. Addressing these risks allows businesses to strengthen their resilience, enhance their reputation, and create a positive impact. Additionally, these efforts can lead to improved long-term financial returns.
Companies that prioritize ESG can not only leverage their influence to contribute positively to society and the environment, but also position themselves for sustained growth and success in an increasingly competitive global marketplace. SLCP is one example of a credible MSI able to support companies in collecting credible and actionable data to make accurate ESG disclosures.
In the next editions of this ESG Series, we will delve deeper into the ongoing efforts to standardize ESG reporting and the rise in ESG-related regulations, and examine how companies can leverage SLCP data in making ESG disclosures.
