ESG (environmental, social, and governance) has come a long way over the last decade; 89% of companies now report on sustainability, up from 72% in 2013. But when something grows too fast, it is at risk of breaking – and after visiting the Bloomberg Event recently,we’ve discovered this is increasingly becoming the case.. Even though the amount of companies reporting is up, 57% of investment professionals believe that ESG information is often inaccurate or misleading, while 47% believe that ESG ratings are not transparent enough.
This has led to what we’re calling ‘a competence conundrum’. In this blog post, you’ll learn everything you need to know about this competence conundrum; from the risks of greenwashing to how to demonstrate competence in your ESG reporting – which, by the way, is definitely what you should be doing.
What Is The Competence Conundrum for ESG?
It all starts with greenwashing. Greenwashing, or the practice of making false or misleading claims about a company’s environmental performance, is a growing problem in the ESG industry. Some companies are using questionable ESG credentials, such as unverified carbon offsets or ineffective sustainability certifications, to promote their sustainability efforts. But if they engage in this kind of behaviour, they risk damaging their reputation and eroding trust with investors and customers. Not just on a personal scale, but a global one too.
To combat greenwashing, investors and regulators are calling for more standardised and rigorous ESG reporting, as well as independent verification and auditing of ESG claims.
In the UK, the Financial Conduct Authority (FCA) has proposed new rules to address greenwashing and promote ESG transparency and accountability.
This is good news for the industry because strong ESG performance is proven to provide beneficial business results. According to a survey by MSCI, companies with strong ESG performance outperformed their peers during the COVID-19 pandemic, highlighting the importance of sustainability in long-term resilience and profitability.
The New Rules Set By The FCA
The FCA’s proposals include a requirement for companies to disclose how they consider ESG risks and opportunities in their decision-making processes, as well as a prohibition on false or misleading ESG claims. The FCA also plans to establish a new ESG disclosure standard, which will require companies to provide consistent and comparable information on their ESG performance and risks.
Therefore, to comply with the new regulations, companies should prioritise competence in their ESG reporting and avoid greenwashing by using verifiable and transparent data and avoiding vague or unsubstantiated claims.
How To Effectively Report on ESG
Luckily, there are a number of ways to get your ESG reporting up to regulatory standards. Here is a checklist you can follow to improve your ESG performance.
- Identify your material ESG risks and opportunities
- Set targets and metrics for measuring your performance
- Disclose relevant data and information to stakeholders
- Follow established frameworks and standards, such as the GRI Standards or the Sustainability Accounting Standards Board (SASB) standards, to ensure consistency and comparability in your reporting
- Leverage technology solutions, such as ESG reporting software, to streamline your reporting processes and improve data accuracy and completeness
- Engage with your stakeholders, including investors, customers, and employees, to understand their ESG priorities and concerns and incorporate their feedback into your reporting.
If you follow these steps, you’ll have no trouble with the FCA and best of all; you’ll not be part of the problem, just the solution.
Work with us to improve your ESG performance, our Business Transformation Solutions includes an ESG offering. With over 15 years of business transformation success under our belts, we are experts at seamlessly intertwining ESG objectives into tailored business transformations to achieve long-term value and sustainable growth.
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