ESG reporting for accountability

By Cynthia Tapera | 4h ago

The ISSB sought to bring accounting discipline.

ENVIRONMENTAL, social and governance (ESG) reporting has evolved into a cornerstone of corporate transparency and accountability.

This is a reflection of the increasing recognition of sustainability and responsible business practices as essential drivers of long term value creation for any business.

Companies across a range of industries are embracing ESG reporting, not only as a regulatory requirement, but also as a strategic imperative to meet the evolving expectation of a variety of stakeholders such as investors, customers and employees.

In this dynamic landscape, there have been consistent efforts to make ESG reporting more standardised, more rigorous, and more closely integrated into corporate decision-making processes.

There has also been a growing emphasis on materiality, on the quality of data, and on stakeholder engagement as companies attempt to enhance the credibility and the relevance of ESG disclosures.

ESG reporting, as it currently stands, represents not only a means to measure and to communicate sustainability efforts, but also as a catalyst for driving positive social and environmental impacts while fostering resilience and innovation.

Drawing largely from the knowledge and the expertise of our work with some companies in Africa, I explore some of the challenges that companies face in their reporting with some possible solutions and best practices based on real world examples.

I will take a deep dive into ESG in the context of two aspects that lie at the core of ESG reporting, that is transparency and accountability.

Keep Reading

Both of these aspects are critical to producing meaningful disclosures that are of interest to corporate stakeholders. I will explore some of the challenges that companies face in their reporting and end briefly with key ESG-related trends to look forward to in the coming months.

ESG reporting awareness

I would like to start with a broad question to our readers, to establish where we currently stand in terms of our knowledge and our understanding of the nuances of ESG reporting, given just how rapidly the landscape is evolving.

If I were to ask you to assign a number on a scale of one to 10, one being least knowledgeable and 10 being highly knowledgeable.

How would you rank the current level of knowledge and understanding among sustainability leaders of ESG reporting, particularly in the context of ensuring better corporate accountability and transparency?

I think that in terms of accountability and transparency, companies are getting fairly good marks, definitely passing grade, maybe hitting a perfect six in some cases.

But where we still really need improvement is connecting that data to strategy and risk management.

So back to the old adage, what gets measured gets managed.

The issue is for the data to be investor grade and another term I like to use is board-ready data, our boards actually using it, our managements using it to drive sustainability performance and ultimately to drive financial performance.

That connection to strategy and risk management has yet to be established in a lot of cases, approaching this question more from a user perspective, from an investor perspective as the primary users of corporate reporting.

If I look globally, which is what most investors are interested in, it really depends on the region.

There are regions where the landscape is very advanced and it is a really predominant conversation that companies are having.

We are seeing a lot of advanced practices, but there are also regions where this is less developed and we still have companies for whom this ESG reporting journey is actually relatively new or uncomfortable.

Certainly, more can be done to get a global baseline, this is helpful for investors. The real issue is data collection, consistent data collection and reporting is still a challenge globally.

Having context for the data is really hard, and that is the least understood topic. So, it makes it really challenging for any company to just say they are doing great.

Of course, there are great case studies out there, but I still have to see companies replicate that systematically.

ESG reporting is still evolving

It is very nascent, especially when you compare it to the rigour of financial reporting, which took decades following the Securities and Exchange Act of 1933.

For sustainability reporting a lot of the rules and the standards are still being developed.

So, because this space is changing quite dramatically, I believe we are at the beginning stages of ESG reporting for companies.

From the perspective of a company operating in Africa, there is need to keep a tab on new reporting standards. We are all largely agreed on the fact that we are still at an early stage, right?

There is a lot of work that needs to be done and clearly it is important for us to get a better understanding of what some of these challenges are and the solutions and best practices.

We have engaged with some of our corporate clients, regarding challenges that companies and decision makers are facing in integrating ESG considerations into corporate strategy and decision-making processes.

One challenge that is repeatedly cited is the difference in reporting frameworks and standards and there are also a wide variety of metrics within these different frameworks. Given our experience with reporting standards and frameworks, particularly the International Sustainability Standards Board (ISSB) principles, we believe that there is a future in which we can bring about greater standardisation across the board to ensure better transparency and accountability.

We are still swimming in this alphabet soup, right? This overwhelming soup of different ESG standards and frameworks, ratings and rankings is complex and costly.

Companies and investors are not getting the useful information they need to guide the flow of capital and then regulators have referred to the Securities and Exchange Commission (SEC), the European Union, and many others around the world, making rules for climate and other sustainability disclosures.

It was the demand from all three sides of that equation, companies, investors, regulators, which drove the International Financial Reporting Standards (IFRS) Foundation to create the ISSB some four years ago, to establish a global baseline of high quality sustainability disclosure for the capital markets.

Essentially, what the ISSB set out to do was to bring accounting discipline to sustainability data, which has not had a lot of discipline or structure in the past and that is really welcome news to companies that are trying to bring sustainability disclosure and all the controls and governance around it up to that level of financial reporting.

The ISSB standards help build structure and processes around this intricate data, which ultimately can contribute to strategy, risk, oversight and long term performance.

If I could just sum it all up in a phrase, I would say that sustainability data is the new currency of business up and down the value chain and with providers of capital and the good news is that we can now all use the same currency.

Tapera is a certified expert in environmental, social and governance impact investing. — [email protected].