2022 – pivotal for corporate sustainability
In markets around the world, the adoption of environmental, social and governance (ESG) agendas has moved quickly from being voluntary or optional just a few years ago, to being an essential part of the strategic plans of any organisation, no matter their size or sector. Mary Tressel, ESG Sector Leader, Moore Global comments
Just last year, 34 regulatory bodies and standard setters in 12 major markets were conducting official consultations on ESG. However, this year could well see infinitely more firms than ever being impacted by one or more of those ESG disclosure regimes being discussed, with significant progress likely towards a single, streamlined, set of sustainability disclosure standards becoming globally mandatory.
The most significant headway came last November 2021 when the IFRS (International Financial Reporting Standards) Foundation – the London-based non-profit that overseas financial reporting standard-setting - announced the creation of the International Sustainability Standards Board (ISSB) to develop a global baseline for sustainability disclosures for the capital markets, at the COP26 climate summit in Glasgow.
In March 2022, ISSB launched a 120-day consultation on its first two proposed standards, one setting out general sustainability-related disclosure requirements, the other specific climate-related disclosure requirements. It is now working together with the International Accounting Standards Board (IASB) to oversee and drive the process.
Key to those are likely to be the need for all organisations to provide sustainability related financial disclosures to investors and other capital market participants which need to highlight exactly how such moves would either build or erode the value of the organisation, and to highlight all the sustainability-related risks and opportunities being created.
This expected uniform measurement is being referred to as ‘dynamic materiality’, and ISSB aims to issue the new standards by the end of the year.
The European Commission and European Financial Reporting Advisory Group, meanwhile, are also planning to replace their current non-financial reporting regime, with the proposed Corporate Sustainability Reporting Directive.
This would require all large companies to include sustainability disclosure in their annual reports, detailing again how ESG impacts and influences their ability to create value, and on their wider social, economic, and natural environmental impacts.
The Securities and Exchange Commission (SEC) in the United States also published a climate disclosure proposal in March.
Britain has already ordered sustainability disclosures be made on the same ‘materiality’ basis, and for climate-related disclosures on any financial affects.
Another UK shift has seen moves to outlaw greenwashing, or disinformation produced by organisations to enhance their image as environmentally responsible, while discussing its intentions on climate concerns, which can mislead investors’ views on businesses.
But let’s be crystal clear – companies shouldn’t fear adopting ESG practices or being forced to stick to any new rules.
According to Moore Global’s latest research, firms embracing an ESG agenda in recent years have actually enjoyed a significant boost to their bottom lines, as well as wider strategic benefits.
Our own study just published - spanning eight major economies – revealed ESG presents various opportunities that are potentially game-changing for businesses, at a time when they have already been facing debilitating effects of Covid, supply chain disruptions, an ongoing energy crisis and chronic staff shortages.
The Centre for Economics and Business Research (CEBR), which conducted the research on our behalf, calculated the potential ESG-related revenue uplift for the 1,262 large businesses we spoke to at an incredible US$4 trillion – that’s $45 million for every firm.
Profits also rose faster for ESG adopters and there are other key business benefits as well, such as better customer retention and brand impact, easier access to capital, and fewer issues hiring staff.
With the eyes of the world on COP 27 taking place this week, its clear sustainability has become so much more than just a corporate nod to being PC. Its universal coming-of age this year could mark a definite shift by business and society towards greater global responsibility for many generations to come.
Featured image: Mary Tressel, ESG Sector Leader, Moore Global