Once, environmental, social and governance (ESG) issues were a concern only among asset owners, asset managers, banks, brokers and investment consultants. Today, however, investors routinely consider a company’s ESG performance along with other financial and strategic information, to better understand its future prospects and make informed investment decisions.
Responding, accordingly, to increased investor demand for a more consistent approach to ESG reporting, the London Stock Exchange published an ESG reporting guide to help companies better understand what ESG information they should provide and how they should provide it.
ESG-related information is ever more important to investors
A company’s human rights, health and safety, corruption and transparency performance is increasingly used to draw conclusions about the quality of management, exposure to business risks, and ability to leverage business opportunities.
ESG-related information has changed from being a “peripheral” part of investment analysis. Investors want to see how companies respond to climate, demographic, technological change and political developments, as well as how they benefit from the transition to the green economy Tweet This!. Today, almost all leading institutional investors of UK and Italian listed companies are signatories to the United Nations-supported Principles for Responsible Investment (PRI). Communicating with investors clearly and accurately on the ESG aspects of a company’s performance, providing them with complete, consistent, reliable, comparable and clear ESG information, is, thus, highly important.
It is also worth noting that ESG reporting does not just concern larger companies. According to Mark Zinkula, CEO, Legal & General Investment Management, it is about “all issuers, regardless of size, reporting relevant and material information to investors so that they can make better-informed investment decisions”.
Benefiting from ESG reporting
By disclosing the information that investors are looking for, businesses can prove that they are effectively managing business risks and identifying opportunities. Most importantly, companies that publish high quality information regarding the longer-term implications of ESG for their business are, research shows, increasingly more likely to attract and retain long-term investors. In addition, such businesses can also reduce the cost of capital and increase their ability to raise new capital to finance sustainable projects. Similarly, having a coherent view on ESG issues and strategy enables them to grasp opportunities presented by the unfolding sustainable and green economy.
Facts and figures
- 60 per cent of assets managed for EU investors incorporate sustainable investment strategies
- Signatories to the United Nations-supported Principles for Responsible Investment (PRI) represent today $60trn in assets under management, up from $22trn in 2010
- The GRI Sustainability Reporting Standards are the most widely used standards for ESG reporting globally: 61 per cent of European corporate responsibility reporters have used the GRI framework to date
- In 2016, more than 80 per cent of the world’s top economies by GDP mandated ESG reporting in some form
What should businesses do?
To adequately respond to the growing significance of ESG issues among investors, companies should:
- Explain the importance of environmental, social and governance factors to their business models and strategy
- Explain how ESG issues may affect their business through, for example, reputational damage, employee turnover or license to operate, and how these impacts may affect business strategy and financial or operational performance
- Explain how they plan to make the most of the new opportunities and revenue streams created by green and socially beneficial products and services
- Identify the parts of the business that manufacture or provide goods, products and services which deliver environmental solutions and support the transition to a green economy
80% of the world’s 250 largest companies report in accordance with the GRI Standards
SustainCase was primarily created to demonstrate, through case studies, the importance of dealing with a company’s most important impacts in a structured way, with use of the GRI Standards. To show how today’s best-run companies are achieving economic, social and environmental success – and how you can too.
Research by well-recognised institutions is clearly proving that responsible companies can look to the future with optimism.
FBRH GRI Standards Certified and IEMA approved Sustainability Course | Venue: London LSE
By registering for the next 2-day FBRH GRI-Standards Certified and IEMA approved Course you will be taking the first step in gaining the many benefits of sustainability reporting.
This article is based on published information by the London Stock Exchange. For the sake of readability, we did not use brackets or ellipses. However, we made sure that the extra or missing words did not change the publication’s meaning. If you would like to quote these written sources from the original please revert to the following links: