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What’s it all about?
In the last decade public consciousness has been growing on a wide range of issues, including climate change, water and food crises, modern slavery, poverty, conflict and inequality. Today, society has increasing expectations of the role businesses should play in tackling some of the planet’s biggest challenges. Organisations are expected to not only minimise their negative impacts, but to also contribute positively to both society and the environment. Corporate sustainability is therefore all about creating long-term value by implementing strategies that incorporate environmental, social and governance (ESG) dimensions, in addition to economic ones. In this regard, although the scale and scope of the global goals is unprecedented, the contribution which businesses of all sizes can make cannot be overstated.
For many, ESG brings to mind environmental issues like climate change and resource scarcity; however, in reality the topic is much broader and considers social and governance matters too. From a social perspective, issues like a company’s labour practices, talent management, product safety and data security are covered. From a governance perspective, topics like board diversity, executive pay and business ethics are discussed, thus forming an integral part of a company’s sustainability agenda. ESG reporting is therefore all about the disclosure of information, data or metrics that explain a business’s impact and added value in these three areas.
ESG reporting can be both qualitative or quantitative in nature. Qualitative reports tend to describe a company’s strategy or policy around the relevant topics, while a quantitative approach includes metrics and key performance indicators (KPIs) linked to each area in order to measure progress against goals and report on achievements. Naturally, a mixed approach that makes use of both qualitative and quantitative information tends to add the most value to the quality of disclosures.
In this respect, various stakeholder groups, such as customers, suppliers, and employees, are calling on companies to do more around key sustainability topics and to be more transparent about their efforts. Investors of all types, particularly institutional investors, are seeking investments in companies that articulate their sustainable long-term value creation strategy: a strategy that outlines not just growth opportunities but also the related risks. They view these ESG matters as critical to understanding the full risk profile of a company and how prepared it is for the future. To this end, while the COVID-19 pandemic has caused much disruption and shifted economic focus in many ways, institutional investors remain committed, if not more committed, to the importance of managing ESG risk and opportunities in their portfolio companies.
While ESG, in its entirety, may seem overwhelming for some companies, especially SMEs, the concept of materiality in understanding what sustainability topics are relevant for your particular organisation and stakeholder group is fundamental. To this end, our key message is for boards and top management to start the conversation on ESG and assess what next steps need to be taken. In this respect, working towards drafting a sustainability strategy and carrying out a carbon footprint assessment may be a good place to start.