Reporting on the ESG factors that matter most

Understanding your stakeholders’ sustainability priorities helps form the foundation of your environmental, social and governance (ESG) reporting. Engaging your stakeholders on ESG matters is important because it pinpoints your organization’s material issues. This helps you align ESG initiatives with your business strategy.

We recently analyzed the ESG reporting of Canada’s top companies. We saw many organizations overlooking opportunities to disclose how they engage their stakeholders. Among the companies we reviewed:

38% don’t identify their internal and external stakeholders
42% don’t explain their process to identify material sustainability issues

Without these steps, companies can slip into the trap of reporting quantity over quality. So-called ESG data dumps make it hard for readers to understand an organization’s impact. It also leaves companies susceptible to accusations of greenwashing.

By contrast, explaining how you engage your stakeholders and act on their priorities shows you’re focusing your efforts where they make the most impact—a step that builds credibility and trust.

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Understanding your stakeholders’ ESG expectations

The importance of an organization’s stakeholders in ESG reporting is coming into sharper focus. As part of its work creating a global baseline for sustainability disclosures, the International Sustainability Standards Board (ISSB) recently highlighted that a company’s ability to deliver value to investors is intertwined with its stakeholders, as well as the society it operates in and the natural resources it draws on.¹

Your stakeholders have important roles to play at different steps of your materiality assessment process. Asking the following questions can help you narrow in on the ESG reporting topics your stakeholders need for their own decision making:

What are the sustainability impacts, risks and opportunities facing our company and broader industry?

What do regulators require—or will soon require—us to disclose?

What’s the link between our organization’s policies and practices—and those of our value chain—and the corresponding environmental and social impact?

What’s the link between changes in environmental and social factors, as well as relevant policy decisions, and the impact on our organization’s costs, revenues and asset values?

What’s our criteria and threshold for determining if an ESG topic is material?

What’s our process for refining our assessment as stakeholders’ needs change and regulations evolve?

Turning stakeholder insights into ESG reporting priorities

Organizations can use multiple communication channels to learn what information stakeholders need and why it matters to them. Facilitated workshops are effective for engaging employees. Individual interviews, meanwhile, are useful for speaking to investors, customers and government officials. Other forums, such as investor calls, customer surveys and employee town halls, are also beneficial.

Our research revealed several useful topics for starting conversations with different stakeholder groups:

Investors and lenders

Meeting the ESG reporting expectations of investors and lenders can benefit your balance sheet. It can lower financing costs and increase access to capital, including green loans and other sustainability linked financing products.

Our new Global Investor Survey explored the importance investors in Canadian companies place on different ESG reporting areas. Their top three priorities, ranked by the percentage of respondents who said the information is important, are:

The cost to meet sustainability commitments, such as a net-zero target (73%)
The effect of sustainability risks and opportunities on financial statement assumptions (71%)
The relevance of sustainability factors to your business model (69%)

Our survey also found a gaping trust deficit: 88% of investors think Canadian companies’ reporting contains unsupported sustainability claims. Nearly three-quarters (73%) of respondents who invest in or cover Canadian companies said independent, reasonable assurance would give them confidence in assessing the accuracy of a company’s sustainability reporting.

81%

of investors in Canadian companies say they use sustainability disclosures to assess how a company is managing risks and opportunities facing their business.

Source: PwC Global Investor Survey 2022

Regulators

Canadian and US securities regulators are developing mandatory ESG reporting requirements. In Europe, regulations are already in effect. For climate disclosures specifically, the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) underpins many of these new standards. Aligning your reporting with the TCFD framework can help you prepare for new reporting requirements.

Many of these new rules are, in part, a response to investor demands for credible and comparable ESG information. Disclosing material ESG risks and opportunities that matter to investors—and elevating your sustainability reporting to the same quality as your financial reporting—can help you keep pace with evolving regulatory requirements.

73%

of investors in Canadian companies say managing regulatory risks is an important factor in including sustainability in their investing decision.

Source: PwC Global Investor Survey 2022

Customers

Whether you’re selling to consumers or other companies, ESG reporting can affect your revenues and ability to do business with some customers. Some B2B companies need to disclose ESG data to help customers manage third-party risks and meet their own reporting requirements, including those contained in Canada’s new Modern Slavery Act, for example. ESG reporting can also create a competitive advantage. In our 25th Annual CEO Survey, 60% of Canadian respondents said customers choose their products or services primarily because of their environmental and social responsibility values.

This is also true for retailers and their suppliers. Canadian consumers want to buy products manufactured and sold by companies with values aligned to their own. Our research found social factors—such as a company’s support for human rights, inclusion and diversity, and local communities—in particular influence consumers’ trust and purchasing decisions.

81%

of Canadian consumers say a company’s efforts to limit its environmental impact affects their trust in a brand.

Source: PwC Canadian Consumer Insights June 2022 pulse survey

Employees and other internal stakeholders

Organizations that foster a shared sense of purpose with employees can gain an edge in recruiting and retaining talent. Our Global Workforce Hopes and Fears Survey 2022 found employees—especially younger workers—want their employers to look beyond financial performance and consider ESG factors.

Specifically, Canadian employees are most likely to say they want employers to transparently disclose their record on protecting worker health and safety. That’s followed by the organization’s economic impact, workplace inclusion and diversity, and impact on the natural environment, including climate change.

84%

of Canadian employees say it’s important for employers to be transparent about their record on protecting worker health and safety.

Source: PwC Global Workforce Hopes and Fears Survey 2022. Includes respondents who answered extremely, very and moderately important.

Building stakeholder trust

These conversations help you understand what information your stakeholders need and how they’ll use it. This is a critical opportunity to confirm that you and your stakeholders are aligned on what’s material to your organization.

The discrepancies between financial materiality and impact materiality—how an issue affects people and the environment—are smaller than is often perceived. In practical terms, these approaches are interwoven. Investing in your stakeholders’ priorities drives long-term enterprise value.

But realizing that value requires transparent reporting to communicate how you’ve engaged your stakeholders and addressed their concerns. We’ve seen powerful outcomes when companies articulate their process for identifying relevant ESG reporting topics in their public disclosures. It helps focus your reporting on pertinent sustainability issues, building the trust needed to sustain your organization’s most critical stakeholder relationships.

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_{¹“ISSB describes the concept of sustainability and its articulation with financial value creation, and announces plans to advance work on natural ecosystems and just transition,” International Financial Reporting Standards Foundation, December 14, 2022, https://www.ifrs.org/news-and-events/news/2022/12/issb-describes-the-concept-of-sustainability.}