ESG Landscape – move to mandatory?

25 Jul 2022

Move to Mandatory ESG Reporting

Regulators worldwide are reviewing their Environmental, Social, and Governance (ESG) reporting requirements, and trends indicate that reporting is shifting from voluntary to mandatory. With the threats of climate change, social disruption, and increased governance risk, it’s clear ‘ESG’ is more than a passing craze.

With the threats of climate change, social disruption, and increased governance risk, it’s clear ‘ESG’ is more than a passing craze.

For example, climate-related financial disclosures are mandatory, or are becoming mandatory in the UK and US for companies above certain sizes or that meet certain criteria. New Zealand and the European Union have similar requirements, and the stock exchanges in Singapore and Hong Kong have both moved to mandatory ESG disclosures for all listed issuers.

Currently in Australia, mandatory reporting only exists for certain matters under the Workplace Gender Equality Act 2012 (Cth) and the Modern Slavery Act 2018 (Cth). Further, the Corporations Act 2001 (Cth) in s1013D(1)(l) requires issuers of financial products to disclose “the extent to which labour standards or environmental, social or ethical considerations are taken into account in the selection retention or realisation of the investment” in their Product Disclosure Statements.

For most large ASX listed companies, ESG mandates are the norm not the exception. The Australian Council of Superannuation Investors (ACSI) ESG Reporting Trends May 2021 survey shares that almost three-fourths of the ASX200 now report detailed or comprehensive information to investors on managing ESG impacts.

As ESG talk continues in boardrooms, there is an expectation that reporting requirements and disclosures for Australian organisations will increase by the end of 2022 and mandatory ESG reporting could follow.

What is ESG Reporting?

Environmental, Social, and Governance (ESG) reporting is where companies outline to stakeholders their sustainability, social impacts, and internal governance.

Environmental aspects include emissions, waste, pollution, use of resources, and other impacts on the planet. Social impacts include social factors, diversity, community, and health. Governance includes best practice systems and processes, anti-corruption, and the make-up of the board.

Companies considering commencing or improving their ESG reporting should not only consider the reporting framework and data collection phase of the process, but the impact ESG and sustainability efforts will have on the business now and into the future. Companies should consider where and how these positive impacts are or can be found, and the outcomes. Improved ESG reporting may, for example, considerably reduce operating costs and reduce operational complexity.

Approaching frameworks

The ESG landscape is expanding at a fast pace.

There are several internationally recognised organisations acknowledged for setting ESG reporting standards, in addition to an emerging number of industry-specific frameworks.

Recognised organisations include Global Reporting Initiative (GRI), Sustainable Accounting Standards Board (SASB), Task-Force on Climate-related Financial Disclosures (TCFD), and United Nation Global Compact (UNGC), which includes the United Nations Sustainable Development Goals (SDGs).

In a more recent addition to frameworks, International Financial Reporting Standards (IFRS) Foundation Trustees introduced the International Sustainability Standards Board (ISSB) in November 2021 with the goal of providing a high-quality global baseline for climate and sustainability disclosure standards, to meet investors’ information needs.

The landscape is complex and growing by the day as ESG gains prominence in all spheres.

The landscape is complex and growing by the day as ESG gains prominence in all spheres. Currently, GRI is one of the most widely adopted frameworks and is helpful in its industry-specific materiality topics. However, its complexity can be daunting for non-ESG experts.

ASIC encourages Australian listed companies to “use the TCFD recommendations as the primary framework for voluntary climate change-related disclosures. Listed companies reporting climate-related information under TCFD are expected to be well placed to transition to any future standard”. Further guidance can be found in TCFD’s Guidance on Metrics, Targets, and Transition Plans.

Two-thirds of ASX200 companies report their ESG impact against the United Nation’s Sustainable Development Goals or refer to them in high-level reporting. The most cited priority by companies has been climate action.

Whilst there is still much that is unknown, what is clear is that ESG is here to stay and will only grow in importance, regardless of your business size or history with reporting.

How To Start Reporting on ESG

In terms of implementation, there are several crucial steps that organisations must take in order to maximise effectiveness.

1. Identify stakeholders and build your team:

Determine the internal and external stakeholders who would be involved in the generation of your ESG reports. Optimally, having a diverse, cross-functional team will ensure that your report will be as concise as possible. Aim to build a team with expertise in areas such as finance, human resources, or risk.

2. Research industry leaders’ ESG reports:

Download ESG reports from peers and industry leaders to understand what data they are disclosing and which frameworks they are using. ESG software becomes invaluable as it can help with meeting Australian ESG report requirements. With this research, engage and brainstorm with stakeholders to determine which metrics are important to your organisation and identify which data you already collect and which data you still need.

3. Build your ESG roadmap:

Engage with your stakeholders to refine the metrics and values that matter to your organisation. Once these metrics and values have been clearly identified, map out the journey to achieving your goals for ESG reporting and ESG performance overall. You can also use dedicated ESG solutions from BoardRoom to help ensure that your overall ESG needs are met.

ESG Software Solutions

How you can prepare for mandatory ESG reporting when it takes effect:

Learn about a framework and disclosures that are relevant to your business
Ask your stakeholders for feedback on topics important to them
Consider your ESG roadmap – how will you collect data? How will you store this in years to come?

ESG reporting is generally data-focused and can involve the collection of information from several sources and people both internally and externally.

Traditional data collection methods like spreadsheets, emails, and ledgers are widely used for the management of this information.

As a result, ESG software has become a crucial project management system assisting businesses with frameworks, disclosure selection, and materiality topics that are appropriate for their industry. For more experienced reporters, ESG software has provided a hub for data collation via collaboration with stakeholders, all in one place.

An ESG software solution can greatly ease entry into reporting for the first time or improve current processes.

Effective sustainability reporting software tools will establish a central depository to simplify data gathering, speed up the process, and reduce administration. In addition, it will educate and guide contributors as to the information requested of them and why it is important to the process. It will also allow administrators and managers to track progress, indicators, and trends for better decision-making.

Advanced ESG software solutions such as BoardRoom’s ESG Access will allow businesses to conduct their own materiality assessments to understand their recommended reporting framework and, at the end of a process, produce a branded distribution-ready report, displaying the data with accompanying statements from management.

Why You Should Consider BoardRoom’s ESG Access

Preparing ESG performance reports can be taxing in both time and resources. While there are a number of ESG solutions available online, BoardRoom’s ESG Access offers access to international frameworks and customised frameworks that align with the needs of your organisation.

Designed with your organisation in mind, Boardroom ESG Access is developed to be intuitive and user-friendly, making it accessible for companies of different sizes. Whether your company is experienced in sustainability reporting or completely new to the process, BoardRoom ESG Access offers your company a straightforward and efficient solution to plan, execute, and track your ESG strategies and key metrics.

ESG Access provides comprehensive ESG and sustainability reporting through data collection and generating reports without the need for external assistance. This allows you to spend less time researching and more time engaging with your stakeholders as to how you meet your ESG initiatives.

Our platform also integrates a number of collaboration tools that enable companies to request data, responses, and evidence from colleagues and stakeholders directly within the platform. This eliminates the need for manual processes such as sending emails or creating spreadsheets. Our ESG software also features review, validation, and audit capabilities, allowing stakeholders to input, review, and approve reporting timelines and data under one centralised platform.

To display the effectiveness of your ESG strategies, ESG Access allows you to design, produce and customise your ESG reports to share with your stakeholders. Present to your stakeholders and shareholders your ESG performance in a professional and tailored manner while offering enhanced transparency.

Speak to one of our ESG team today to see how we can help streamline and simplify your ESG reporting journey.