Despite a lack of regulatory clarity in the U.S. on ESG reporting, companies are barreling ahead with disclosing a variety of related metrics. Nneoma E. Njoku, general manager of disclosure communications firm Labrador, shares her analysis of ESG disclosures by some of the world’s biggest companies to see what they reveal.
Whether directly or indirectly involved in the oversight of corporate disclosure documents, compliance professionals have an increasingly difficult role ensuring that the information provided to investors, consumers and other stakeholders is accurate, driven in part by the hyperfocus on ESG issues and the lack of related regulatory guidance. But for these stewards of compliance, ESG is the wild west, as reporting continues to evolve from completely voluntary to a hybrid of mandatory and voluntary disclosure.
With an eye toward expected SEC climate, board diversity and other ESG mandates, compliance professionals can evaluate their ESG-related processes and policies now to position the company for success later by understanding what their peers and leading companies are disclosing.
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Highlights from study of the S&P 500’s top 50 companies’ ESG reporting
A recent study of the S&P 500’s top 50 companies’ ESG reporting conducted by Labrador, a global communications firm specializing in corporate disclosure documents, found that 48 published some type of ESG report. Of those 48 companies, 47 provided an interactive, clickable PDF and most included additional information about their ESG initiatives online.
Here are the highlights of what those companies disclosed:
External reporting frameworks
Comparability of information across companies and industries has consistently been identified as a major challenge and limitation to the use of ESG reports and data. Consequently, a growing number of companies worldwide use existing voluntary sustainability reporting frameworks and standards that aim to provide standardized principles, topics and metrics for ESG reporting.
The study found that all of the companies referenced use at least one external framework with the average number reported being three:
- 85% use the standards of Sustainability Accounting Standards Board (SASB), which is now part of the International Sustainability Standards Board (ISSB)
- 74% use the Global Reporting Initiative Standards
- 68% use the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD)
- 66% show alignment of their ESG initiatives with the United Nations Sustainable Development Goals (UN SDGs)
This trend is important to note. As companies work to address ESG issues with a common, standardized language, using these reporting structures and frameworks can prove valuable. This should lead to an improvement in the quality and comparability of data being reported and a more uniform way for stakeholders to analyze and assess the extra-financial performance of companies.
Most of the S&P 50 (77%) had a strategy in place for ESG reporting and 33% of those companies provided long-term strategic objectives. Nearly 71% weighed risks and opportunities, and all included some elements of ESG in the company’s mission.
To highlight the important role sustainability plays in strategy setting, risk management and company culture, 8% of all company documents begin with a letter from the CEO and/or chairperson of the board. The opening letter provides an opportunity to present management’s philosophies and principles in a more thoughtful manner.
Nearly all the benchmarked S&P 50 companies discuss how they manage climate-related risks and carbon reduction. More than 90% disclosed at least one carbon-reduction goal, with the vast majority showing their progress on that goal. More than 85% disclosed Scope 1 and Scope 2 greenhouse gas emissions reduction goals, and 65% disclosed a Scope 3 greenhouse gas emissions-reduction goal.
All but two set quantitative climate objectives, such as renewable electricity by 2030 or net zero emissions by 2030, 2040 or 2050.
All companies reported on DEI policies, and the social section of their ESG report was usually the longest, averaging 22 pages.
Workforce gender diversity was disclosed by 100% of the benchmarked companies, and nearly all cited race and ethnicity. Many provided a breakdown by employee classification and noted the year-over-year changes.
Employment information reports (EEO-1) are typically linked within the ESG report. In many cases, reporting has expanded to include not only gender and racial and ethnic diversity, but also diversity in sexual orientation, age, disability, veteran status and more. Many companies also disclose board-level diversity statistics, linking to their latest proxy statements for more information on director biographies and skills.
Within the reporting, there is a demonstrated push to include measurable corporate DEI goals and address efforts to recruit, advance and retain a diverse workforce. Further, more companies are including detailed information about pay equity practices noting the existence of pay gaps and the strategies to close these gaps
When it comes to governance, management oversight of ESG programs varies, but 92% specify levels of oversight and management of their most important ESG issues. A majority (84%) state there is a link between board of directors oversight and management. Twenty four percent have an ESG-specific committee that reports to the board, while others note that ESG responsibilities are the purview of already established committees, e.g., nominating and/or corporate governance committees.
Moving forward responsibly
Companies are sharing myriad ESG-related metrics in their annual sustainability reports, and readers are looking for specific ESG goals, data and progress made year-over-year. Stakeholders are looking for signs that companies are backing up their commitments with real progress. Aspirational commitments with no information shared on how they are being tracked and met can be viewed as greenwashing.
Compliance professionals are valuable partners and can help ensure companies report ESG information transparently prior to government mandates. Delivering clear, concise information that is easily understood and includes targets and year-over-year progress is critical.
Companies can evaluate their ESG data and reporting against the various ESG external reporting frameworks and standards to see how they compare to these best practices. Using voluntary ESG frameworks and standards from GRI, ISSB, TCFD and others can help companies develop the data collection, analysis and auditing competencies they will need when formal ESG regulations come online.
Throughout this process, the board of directors should be frequently updated about progress. The role of the board is evolving in tandem with that of the compliance officer, and there is value in the board developing deeper understanding and oversight of ESG reporting. As companies make this transition with ESG reporting, like any corporate practice, change most often starts at the top of an organization.