Sustainability in Motion Podcast - Episode 2: ESG Reporting

I very much enjoyed my recent podcast conversation with Matt Orsagh, Chief Content Officer, ED4S and Nawar, Alsaadi, Founder & CEO, Kanata Advisors and Advisor to ED4S, and share some of the highlights below.

On why ESG reporting matters

It matters to companies because their stakeholders are asking and taking ESG performance into consideration when making decisions that affect the company.

Stakeholders are largely business counterparts, like customers, investors, consumers, employees, governments, NGOs, and in some cases specific local communities

Why do they want to know? 

I believe it's because of the growing awareness of two things:

1. That the explicit consideration of environmental, social, and governance (ESG) issues makes for better management of the business, as long as we’re talking about material issues to the business;
2. That we are collectively running into a wall, ecologically and socially speaking, that business as usual cannot continue because we are destroying the very conditions that allow us to live – applied to business this means we’re destroying the very conditions that allow business to thrive – so that means companies need to start identifying, measuring, and managing the impact they are having on the ecosystem they depend on.

What companies can get out of it?

• Better risk management. This is not to be underestimated. It includes physical risk (climate catastrophes), business risk (running out of water), regulatory risk (changing laws), legal risk (liability from not doing or poor reporting), reputational risk (either from not doing what you should be or saying you do something that you don’t actually do).
• Identification of opportunities. These come from business contributing to addressing the needs and problems of society and the environment.
• Better financial performance. Meeting business counterparts' expectations translates into more revenues, less expenses, cheaper debt and insurance, better access to capital.

On what companies are getting wrong, or right, in sustainability reporting

Sustainability maturity is a spectrum, every company is different.

I would say the biggest hurdle is companies still being unaware or not understanding why they’re being asked to report.

A common mistake is to see this as a compliance exercise (whether regulations or a customer request) and thinking it’s a once-and-done activity.

And for those companies that have someone on the inside who does ‘get it’, who wants to embrace the change, the biggest challenge is lack of resources — which is usually an indication that the senior most level of the company hasn’t ‘gotten it’ yet.

On what good reporting looks like

Generally speaking, I look for the following characteristics in assessing a report:

• Follows at least one standard, properly
• Is well scoped out
• Clearly articulates why the material issues are material to the company, how it manages them, and how it’s performing on them over time
• The narrative is balanced and realistic and matches the quantitative performance data
• Explains how performance stacks up to targets, if there are any
• Is released at the same time or close to financial reporting

‍On whether companies (still) view reporting as a compliance exercise

Companies that have been through a few rounds of reporting or that engage with their stakeholders understand it’s not merely a compliance exercise. 

However, most companies still see reporting as a standalone exercise, not as an accountability mechanism that's part of the management process. 

But that’s the goal, because that’s where the value is for companies, when they properly manage their material issues.

On how regulations should change to make ESG reporting better fit for purpose

I think we’re generally on the right track with mandatory, standardized, audited, and digitized disclosures (which is exactly what the CSRD is bringing). We just need to do it a lot faster.

1. Make disclosures mandatory for all companies, including small ones and private ones. I think the EU has the right idea with lighter but still aligned standards; the IFRS has a different but also valid approach of proportionality and no undue effort
2. Impose a standard, so that disclosures are comparable
3. Make the double materiality concept mandatory and require a lot more information about impact‍
4. Create a mechanism to unblock funding for companies to embrace this change, either through subsidies, grants, tax deductions, etc.

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Listen to the podcast