Reviewing Voluntary Environment, Social, and Governance Reporting Strategies: Balancing Transparency and Effectiveness

This blog was coauthored by Vincent Hoen, Associate Director at Guidehouse, Paul Holdredge, Sustainability Operations Manager at GE, and Ghazi Kablouti, Global Sustainability Programs Manager at GE

Investors, nongovernment organizations, suppliers, customers, and governments are increasingly requiring companies to share their Environment, Social, and Governance (ESG) strategy, governance mechanisms, and performance data. Recently, large institutional investors such as BlackRock and Vanguard publicly emphasized the need for companies to share data on their ESG progress. In 2018’s proxy season, more than 420 shareholder resolutions on environmental, social, and sustainability issues have been filed for publicly traded companies. More than half of these resolutions are related to climate change, corporate political activity, and sustainability, according to the 2018 Proxy Preview report. In general, the ESG strategies of investors and financial organizations increasingly require more disclosure from the companies they invest in regarding their ESG and climate strategies. 

Standardization: Burden or Benefit?

The rising interest for ESG disclosure pushes companies onto a fragmented landscape of disclosure standards and schemes. While some stakeholders’ disclosure requests are unique, the majority of requests point companies to frameworks and ranking schemes such as CDP (formerly the Carbon Disclosure Project) or the Dow Jones Sustainability Index. Standardized disclosure frameworks are also available through the Global Reporting Initiative, the G20 Task Force on Climate-related Financial Disclosures, and the Sustainable Accounting Standards Board (SASB). The SASB approach aims to standardize sustainability disclosure using a model replicating what the Financial Accounting Standards Board has done on financial disclosures. However, similar efforts are also claimed by others such as the International Integrated Reporting Council, which seeks to standardize sustainability disclosure by guiding its integration into official financial disclosures. In the near term, multiple efforts to standardize may instead create more burden on disclosing companies and less clarity for stakeholders.

In view of these challenges, corporations must develop new strategies on how to navigate through the complexity of reporting schemes, including specific guidance on emerging topics such as science-based targets, while satisfying a diverse range of report users. The ultimate objective should be to effectively tell the company’s own value creation story through a common understanding of ESG issues, such as setting climate targets and moving to a circular economy, while recognizing the reporting environment today as a platform of dialogue which can drive learning and continuous improvement.