Friday, June 14, 2024
HomeUncategorizedHow ESG Reporting Helps Companies Mitigate Risk

How ESG Reporting Helps Companies Mitigate Risk

Last year, ESG assets worldwide were valued at nearly 17 trillion USD. According to Bloomberg, by 2025, they will be worth more than 50 trillion USD.

Investors today seem to be investing to the tune of a new strategy: in enterprises that are environment-friendly, socially responsible, and accountable to their stakeholders, from customers and investors to employees and non-profits.

Consequently, enterprises have an incentive to disclose their ESG performance metrics. The higher their ESG quotient, the more valuable they are perceived.

But, as we will find out, there is a small hiccup.

What is ESG reporting?

 ESG reporting is the practice of disclosing data that outlines one’s contributions to achieving sustainable growth.

Not long ago, sustainability was mostly linked to environmental causes, like reducing one’s reliance on non-renewable sources of energy.

However, the umbrella term has today expanded to cover social causes, like inclusion and equality, as well as transparency and accountability expected from corporate governance.

That is what ESG stands for: Environmental, Social, and Governance. And the factors under consideration are as numerous as they are diverse.

Environmental

  • Keeping energy usage and resource management in check
  • Optimizing supply chains and production to minimize emissions
  • Innovating to reduce — even neutralize — carbon footprint, air and water pollution, deforestation
  • Innovating to improve waste management, biodiversity, animal welfare

Social 

  • Creating a community founded on diversity, equality, and fairness
  • Complying by labour laws and human rights in all states and nations
  • Communication, like marketing, that equally and objectively represents minorities
  • Supporting local communities

Governance 

  • Transparency about how technology impacts the wider society; privacy and ethical AI,

for example

  • Tax strategy
  • Diversity, equality, and fairness in leadership; equal pay, for example
  • Aversion to corruption, anti-competitive policies, and political fraternizing

These are just 12 of the hundreds and even thousands of factors that investors assess to make an informed investment decision. Or they simply consult experts in ESG Advisory Services.

The importance of ESG reporting

 More than half of today’s investors, especially millennials and Gen Z, share the desire to invest responsibly, in companies that don’t exploit people or the planet for profit.

Companies, therefore, that don’t comply with ESG norms can suffer serious financial consequences.

While earlier, religious beliefs prevented investors from investing in liquor or tobacco, today, political and cultural beliefs prevent investors from investing in companies known to abuse resources, labour laws, or user privacy.

In fact, the companies suffer a double blow.

Modern consumers, too, want to consume consciously and responsibly. They don’t wish to be associated with a brand mired in such controversies.

Consumers are loyal to brands that are an extension of themselves, whose values resonate with theirs.

Consequently, ESG assets have enjoyed incredible returns. Lately, they have

outperformed entire S&P indices.

Last year, nearly 30% or one-third of global assets were “green.” By 2025, the figure is expected to be one-half. Yes, 50%.

That’s how ESG reporting mitigates risks: by outlining their contributions to sustainable growth, companies actively address (ever-evolving) investor concerns, instead of concealing the data and risking looking non-transparent.

Investing in ESG research and reporting mitigates future risks, which helps achieve long- term success.

And the hiccup?

It’s called greenwashing.

What is greenwashing?

 As explained in detail here, “greenwashing is the practice of exaggerating one’s “green” quotient.”

Greenwashing is achieved by either labelling partially green assets entirely green, or concealing data that may bring down their quotient.

The rationale is quite simple: companies want to make the most of the frenzy around ESG.

Companies that greenwash heavily invest in marketing that cleverly communicates only what the stakeholders wish to hear.

Take the half-truth about modern goods.

Sure, many goods are built from recycled objects, and the packaging is mostly paper, but what about the supply chain that heavily contributes to greenhouse emissions? Or the exploitation of labour to ensure low prices?

Here’s the problem: today, we lack rigid, globally accepted, uniform standards that dictate what qualifies as sustainable and what doesn’t.

Instead of an ESG score formulated by an independent committee, ESG scores number in several hundred, formulated by different ESG consulting firms relying on different factors and techniques.

Unless we establish universally accepted guidelines to determine one’s ESG quotient,

there will always be room for malicious enterprises to exploit the ambiguity.

Until then, it’s difficult to determine which companies are truly building a better future and which ones are merely making promises.

In any case, ESG reporting, green or greenwashed, well mitigates future risks.

To know more about ESG Consulting Services or Data Analytics Services get in touch with SG Analytics.

Author Bio:

Author Bio

I am Akshat Bharani, Founder & CEO 10XDigitals. I run a Digital Marketing Agency, where we help clients generate leads using online marketing & help them with website development. I like to write about various topics like Technology, Marketing, Entrepreneurship, Health, and Wellness, etc

RELATED ARTICLES
- Advertisment -

Most Popular

Recent Comments