Building and demonstrating sustainable long-term value creation, based on strong core values and culture, is at the heart of business reporting now. The key is to recognise signs of complacency or acceptance of ‘good practice’, as the goal should be to aspire to ‘best practice’ reporting that investors and other stakeholders will be expecting.
The World Economic Forum Global Risks Report 2019 tells us that seven of the top ten global risks by likelihood and impact are environmental and social risks.1
Investors and other stakeholders, including Gen X and Millennials, are vitally concerned about their futures and are demanding changes in corporate behaviour and attitude.
With the renewed focus on improving ESG2 risk management, practice and reporting by Australian companies, it’s important for boards and senior management to show leadership in gaining community trust by asking themselves tough questions, including:
ESG is becoming one of the biggest issues for investment markets and for governance… Boards of large listed companies need directors who understand ESG and how organisations should engage the market on it. Australia is probably five years behind. We will almost certainly follow Northern Hemisphere trends in how companies disclose ESG data and how asset managers analyse it.
Make no mistake; it is no longer easy to pay lip service to ESG obligations and reporting. Investors and the broader community alike are now seeking leadership in ESG matters – authentic, meaningful and measurable corporate ESG reporting, particularly around risk management, governance and good corporate citizenship, where many organisations have been found wanting in recent years.
Building and demonstrating sustainable long-term value creation, based on strong core values and culture, is at the heart of business reporting now. The key is to recognise signs of complacency or acceptance of ‘good practice’, as the goal should be to aspire to ‘best practice’ reporting that investors and other stakeholders will be expecting.
It is also important to remember that ESG is more than traditional environmental management and filling out environmental surveys – it includes social responsibility (a positive contribution to society), corporate governance and risk management, three of the hot issues around corporate behaviour right now.
ESG assesses organisations through the lens of their ESG performance, is based on hard and measurable data, and is used in investment and other capital-allocation decisions.
So, does your business meet the latest investor, community, and government expectations for measurable ESG performance? Have you assessed the risks to your organisation’s reputation from ESG sub-performance? Does ESG practice and performance actually match the rhetoric in your organisation?
The great news is that best practice reporting is a journey of ongoing improvement that can commence with your very next annual or ESG report. It’s not necessary to have every ESG element flawlessly addressed and in perfect order before you report on ESG performance. The aspiration to best practice reporting, especially with commitment from the board and senior management, will set you on the right path by putting the right structure and plans in place and proactively improving from there.
An ESG best practice review may even be the trigger for the start of an Integrated Reporting plan that will be a positive for how the company operates and reports – see our articles Building trust through transparency and Taking opportunities to strengthen investor brand.
Often, an all-of-company review and subsequent restructure ahead of <IR> adoption drives a different way of operating, measuring and reporting compared to the traditional operating model based on separate financial, operational and ESG reports. In light of this, companies should seriously consider taking the first steps towards integrating all aspects of their business, and begin reporting accordingly.
It is over the long-term that ESG factors – ranging from climate change to diversity to board effectiveness – have real and quantifiable financial impacts. Our risk analysis extends across all sectors and geographies, helping us identify companies lagging behind peers on ESG issues.
Consider the following key steps that your company can take on its journey to authentic and realistic ESG action and best practice reporting:
