The Future of ESG Disclosure
As the world becomes increasingly aware of the importance of sustainability, more and more companies are beginning to prioritize environmental, social, and governance (ESG) issues in their operations. This trend is reflected in the growing demand for ESG information and disclosure from investors, consumers, and other stakeholders. In this blog post, we'll take a look at the future of ESG disclosure and how it is evolving to meet the needs of a changing world.
One of the major drivers of the future of ESG disclosure is the increasing recognition of the financial risks and opportunities associated with sustainability. As awareness of the impact of climate change and other environmental issues grows, investors are increasingly looking for information about how companies are addressing these issues to continue successful operations. At the same time, consumers are becoming more aware of the social and ethical implications of the products and services they purchase and are demanding more transparency from companies.
To meet this demand, companies are increasingly turning to standardized reporting frameworks and reporting guidelines. The Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) are two examples of organizations that have developed frameworks and guidelines for ESG disclosure. These frameworks provide companies with a structured way to report on their sustainability performance and allow stakeholders to compare the performance of different companies. And now, the International Sustainability Standards Board (ISSB), part of the International Financial Reporting Standards (IFRS) and what SASB has transitioned to, has recently developed a consolidated set of international standards. This is exactly what the industry needed with too many different standards and frameworks in the mix historically.
The ISSB is set to release the first two installments of their standards by the end of the second quarter of this year, 2023. S1, the first installment, is deemed as the core baseline of sustainability reporting and is designed to apply to all industries and companies around the world. S2, the second, is more targeted and aimed at climate mitigation and climate adaptation – building on existing disclosure frameworks. One of these, the Task Force on Climate-Related Financial Disclosures (TCFD), is expected the play a big role as a successful current framework and will likely continue to exist independently for some time. 1 World Sustainability welcomes the progress from the ISSB and looks forward to working with these standards.
The U.S. Securities and Exchange Commission will also soon be involved when it comes to reporting ESG and sustainability data for public companies. We expect the pending rule to enhance and standardize climate-related disclosures for investors to pass in the second or third quarter of 2023. SEC Chair Gary Gensler has noted that “investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.” There are currently three categories of disclosure: material climate impacts, greenhouse-gas emissions, and any targets or transition plans. And our climate scenario analysis would meet all of the requirements to disclose the material climate impacts by reporting on:
exposure to physical climate-related hazards (wildfires, floods, droughts, etc.) by location and share of assets exposed
exposure to transition risks (regulatory, technological, market, or reputational) over the short, medium, and long-term
associated strategic impacts, financial impacts, and operational impacts
and the company’s governance and risk management process to manage the identified risks
Another key trend in the future of ESG disclosure is the growing use of technology to collect and analyze data. Companies are using a range of tools, such as sustainability management software and data analytics platforms, to track and measure their ESG performance. This allows them to identify areas for improvement and to communicate their sustainability efforts to stakeholders at a more detailed level.
The use of technology is also enabling companies to better engage with their stakeholders. Many companies are using digital platforms, such as social media and online forums, to gather feedback and insights from their stakeholders when conducting materiality assessments and other stakeholder outreach work. This allows them to better understand the concerns and priorities of their stakeholders and to then respond more effectively to their needs.
Overall, the future of ESG disclosure looks bright, especially with the recent news from the ISSB, as more and more companies are recognizing the importance of sustainability and the need for transparency. As the demand for ESG information continues to grow, we can expect to see even more companies adopting the ISSB standardized reporting framework and leveraging technology to improve tracking and communication of their sustainability performance. This will not only benefit investors and consumers, but also contribute to a more sustainable and equitable future for all.