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The Current State of ESG Reporting – It’s not just about the ‘E” add image

Date: June 3, 2022

Written by Allison Hawkins: CRM

Most of the time ESG reporting is associated with “Climate Change” or “Sustainability” or “Carbon Emissions”, which gives the illusion that ESG is there to address climate change. The reality is that ESG is an organisational approach to managing the risks associated with, not just an excellent or poor environmental record, but also how an organisation’s approach to business affects its internal effectiveness and potential for growth, the communities in which it operates and society as a whole. In a way it’s an ERM program for sustainability, diversity and inclusion and societal good. If an organisation is lacking in one or all of those areas, adopting an ESG program will provide the impetus for management to look at the risks and opportunities both internally and externally in all of those areas. As mentioned in CRTA’s most recent publication on ESG, there are many challenges to implementing a good ESG program, but the most important aspect of any good program is Board and Executive support. It requires an entirely new approach to the strategic goals and what has traditionally been considered “value” particularly in publicly traded companies.

The rise of ESG has come with a general recognition that a focus on immediate shareholder value and profit is a very narrow view of an organisation’s health and potential for future growth. In addition, as more shareholders became “shareholder activists”, the pressures on Boards to implement meaningful ESG programs and changes became more important. Noted in the CRTA article “Challenges in Implementing ESG Programs”, two thirds of board members indicated that ESG is linked to the company strategy but only a quarter understood it well. Education and understanding on ESG must become an integral part of the organisation for a meaningful program to be successful. 

To properly implement an effective ESG program, it must be understood that all three components play an important role and often affect the success of the others. So, if ESG isn’t just about the environment, what is meant by achieving a sustainable future? When implementing an ESG program and also considering the potential ESG ranking, a number of areas must be assessed. The organization itself, its board makeup, how ESG is tied to compensation and strategy, the satisfaction of its workforce, the diversity of the organization, etc., all play a role in rankings. Then the impact of the operations on the community itself must also be considered. No matter what business an organisation is in, there is an impact on the community. Are the organisation’s operations and governance having a positive or negative impact on the community and does the community agree with this assessment? Is the organisation a target of activists or protestors? Has the organisation been criticized for its practices? A true ESG program requires a thorough examination of how the company is run, how its perceived by its employees, how it impacts the community and if its operations are contributing to a healthy environment. In CRTA article “What the Future Holds” the experts indicate that the focus is on the E now but G&S are following close behind.

To get ahead of the game, start with an ESG strategy that looks at all of the components and tie it to the company’s strategy. A thorough review of all the components of ESG will help identify where there are weaknesses, strengths and opportunities. Put in place meaningful targets that are measured and reported in a transparent manner. One of the future considerations mentioned in the CRTA article is that with new standards, reporting requirements and tools, implementing a program will become easier, and it will also mean that what is reported will be subject to more scrutiny and possible penalties or litigation.  Organisations that establish a solid ESG program that includes all components, implement transparent reporting and a demonstrate commitment to achieving measurable results will be far ahead and avoid many of the pitfalls of those who are less prepared.

For more information on ESG: Read our most recent thought leadership paper: Canada's Position in the ESG Movement​

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