In his annual letter to CEOs in January, CEO Laurence Fink announced that BlackRock was putting “sustainability at the center of [its] investment approach,” and made clear that companies needed to step up their games when it comes to sustainability disclosure. (See this PubCo post.) Even in the aftermath of the COVID-19 outbreak, both BlackRock and State Street have issued statements indicating their intention to continue to center their stewardship on the demand for additional disclosure on key ESG and sustainability issues such as climate change risk and human capital management. For those seeking to improve their ESG reporting, a managing director of consultant Protiviti offers a number of recommendations (summarized below), in this Forbes article:
- Use graphics, such as a “materiality map,” to highlight key issues, and provide data tables that allow users to download the information into their financial models and tools.
- To identify relevant sustainability priorities, look to the 17 comprehensive sustainability development goals adopted by the UN in 2015 and reflected in the 2030 Agenda for Sustainable Development. In addition to any disclosure regarding historical performance, disclose future targets, goals and any commitments aligned with strategy. The author suggests that “best practice is to include in ESG reports the targets the company is committed to meet up through 2030, demonstrating a commitment to continually improve over time.” (Of course, don’t forget to include appropriate qualifications and forward-looking statement disclaimers.)
- To help foster comparability and consistency, craft the report by reference to one or more recognized ESG frameworks, such as the CDP (formerly the Carbon Disclosure Project) (see this PubCo post), Global Reporting Initiative (GRI), or Sustainability Accounting Standards Board (SASB) (see this PubCo post). (You might also be on the lookout for a new initiative, Toward Common Metrics and Consistent Reporting of Sustainable Value Creation, sponsored by the World Economic Forum International Business Council in collaboration with the Big Four accounting firms. (See this PubCo post.)) Similarly, the author advocates addressing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) for disclosure regarding climate change risks and opportunities. (See this PubCo post.)
- Make the connection between ESG and improving financial performance by highlighting how “ESG-related activities drive investments, generate returns, create new sources of revenue, reduce operating costs and enable strategies.” Providing financial information related to the impact of ESG efforts may start to shift the report “toward a more integrated format, which is likely where public reporting is headed eventually.” Consistent with that potential approach, the author recommends that ESG reporting be timed to conform to the company’s financial reporting calendar.
- Describe the board’s role in oversight of ESG activities.
- Discuss how ESG integrates into the company’s enterprise risk management activities, referring to COSO guidance on integration.
- The author advocates that ESG information be validated, using assurance such as internal audit to assess ESG disclosure controls and/or attestation by outside auditors or other qualified parties. The author notes growing interest in assurance about ESG data as a result of increased investor reliance on the data and even for capital market transactions (in the event underwriters request comfort).
- Finally, the author suggests that, to create a good report, the company should be sure to tell its own story of its particular journey “to becoming and sustaining a business committed to delivering value to customers, employees, suppliers, communities and shareholders.”