Independent research highlights how rapidly the ESG arena is evolving in terms of required disclosures and regulations.
The recent COP 26 UN Climate Change Conference has once again thrust the issue of climate change and sustainability into the public eye. Already an ever-present topic in the media, the emerging initiatives from the conference, such as phasing out coal power and cutting methane gas emissions, point to increasing regulatory requirements in these areas in the future.
Whereas until relatively recently firms could afford to pay little attention to their sustainability efforts, that has since changed, and the escalating narrative brought about by events like COP 26 mean that organizations now need to pay real attention to the ways in which they manage and report on their sustainability operations.
In its recent report titled Strategic Focus: Future Evolution Of ESG Disclosures, independent research and advisory firm Verdantix highlights how the investment community has collectively pivoted towards a pro-ESG stance. According to Verdantix, the growing impact of ESG in financial markets is reflected in a variety of ways, including:
- Significant challenges to accessing capital due to poor ESG credit rating
- Negative changes in share prices as a consequence of low ESG scores
- Financial regulators cracking down on greenwashing of financial products
- Stakeholder pressure on ESG-related issues leading to boardroom shake-ups
- Heavyweight financial analytics and data providers acquiring ESG capabilities
The size and scope of these changes mean that firms need to plan for increased complexity of ESG disclosure requirements, with new comprehensive mandatory climate and ESG disclosures adding a big compliance dimension.
The report outlines the future evolution of ESG disclosures up to 2025, and it’s clear that big changes are coming to the way in which organizations will need to report on ESG between now and then. The research and advisory firm has identified five major directives, regulations, and implementations which board directors and executives will need to act on over the next two years alone.
Adhoc and bare minimum efforts around data management are clearly not going to be enough to meet these future ESG disclosure and reporting requirements, and organizations currently adopting this type of approach will need to reorganize this aspect of their business. It’s IsoMetrix’s view that technology implementation will play an important role in the ability to adapt to the major changes coming down the line regarding ESG reporting.
Increasingly stringent regulations are going to require better data management at all stages of the process, from identification and sourcing through to integration, centralization, analysis, and reporting. Systems that can seamlessly draw information from various sources, automate the production of reports against multiple standards, and provide visibility regarding potential risk areas at the boardroom level will be crucial tools in enabling businesses to adjust to this new ESG reality.
Technology will not only help organizations survive, however, but can enable them to thrive as well. The ability to pull multiple sources of data into a centralized and unified software system immediately makes the data management process more controlled and efficient. When combined with the ability to visually display this data via dashboards (facilitating analysis and improved decision-making) as well as rapidly packaging it for disclosure and reporting purposes, the overall case for integrating technology into a firm’s ESG operations becomes a compelling one. Leveraging technology can help companies adjust to rapidly evolving ESG regulations, as well as enable them to run a more efficient and less resource-intensive business.
It’s a win-win scenario which deserves further investigation by any company daunted by the scale of changes happening in the ESG arena.