Diligent: ESG reporting requirements and disclosures
Hi Lisa, What does the current landscape of corporate ESG look like?
It’s been a watershed year for ESG, between political resistance against ethical investing, as well as criticism of ESG as being distracting from financial returns, particularly in the United States. At the same time, regulations have jump-started climate disclosures, with the Corporate Sustainability Reporting Directive (CSRD) recently rolling out and the SEC’s climate disclosure rules looming over public companies.
To find out how corporate directors are viewing ESG amidst recent developments, Diligent Institute, the governance research arm of Diligent, and Spencer Stuart recently conducted a survey of nearly 1,000 board directors globally. The results were mixed, with European directors more likely to view ESG as an opportunity (56%) and US directors more likely to view it as a risk (34%). However, there was a consensus on one thing – nearly half of the directors want more clarity on how sustainability goals link to their larger corporate strategy. Lack of clarity around what ESG means for the company, as well as trying to balance ESG initiatives with competing business priorities or strategic interests, is where the greatest challenges lie for boards at the moment.
Who is overseeing ESG at the board level?
For nearly half of organisations globally, ESG oversight sits at the full board level as opposed to a sustainability or ESG committee. Some boards (around 10%) are diversifying their representation by looking to appoint new directors with ESG backgrounds. A higher number (29%) are educating themselves on ESG through upskilling and certifications. Even more (38%) are looking to install ESG-monitoring solutions at the board level to inform data-driven decision-making.
With increased pressure from regulators, investors and shareholders, ESG is not a segmented issue. The full board needs to enhance its knowledge of the risks and opportunities that their organisations face surrounding ESG.
What do board members across various industries say is the biggest obstacle to ESG progress?
In our findings, 45% of directors report that they need better insights into how their ESG goals link to their overall company strategy. In addition, 22% of directors indicate competing business or strategic topics on the board agenda, and the same number report a lack of clarity for what ESG means to the business. Notably, the public backlash around ESG is not a big concern for boards, with only 2% identifying public backlash against ESG as being one of the largest obstacles to ESG strategy and implementation.
How are companies responding to new ESG reporting requirements and disclosures?
Boards are actively increasing their oversight and reporting structures to be disclosure-ready. More than half of directors say their organisations are enhancing their current ESG disclosures to keep up with the ever-changing requirements, and 60% say they are taking extra care to ensure their ESG strategy is properly reflected in their annual reports. Again, these numbers are higher in Europe, where the CSRD has already begun its rollout.
How big is the disparity in ESG between the US and the UK?
Across the board, European directors are taking action at higher rates to prepare for ESG regulations. The number of directors in Europe not acting on ESG is few and far between, with only 2% saying they aren’t prioritising ESG strategies.
Regulations are a driving factor behind prioritising ESG, so it stands to reason that Europe has been quicker to progress its ESG strategies. In the US, however, the SEC’s new climate disclosure rules are soon to come into play, and corporate directors are already preparing. More than half say they’ll take extra care to ensure their ESG strategies are adequately reflected in annual reports and filings. At the same time, 46% of US directors plan to enhance their ESG disclosure methods.
At the end of the day, whether ESG is a current priority for businesses and stakeholders, and whether it is viewed as a risk or opportunity, all organisations will need to measure and report on ESG to understand where they are in comparison to peers and make informed decisions on strategy for the future. Most boards recognise the value in collecting and measuring climate data, and organisations are mobilising to prepare for regulatory reporting.
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