ESG integration in the FTSE 100: still a long way to go?

Our latest issue of ‘Reporting Matters’ reveals the findings of our research on ESG integration and disclosure in the FTSE 100. 

To understand how well companies are integrating and reporting on ESG, Luminous’ Strategy & Insight team examined 39 annual reports from FTSE 100 companies. Using the London Stock Exchange’s industry labels, we analysed the most recent reports of the two largest companies in each industry by market cap.

With ESG emerging as a topic investors increasingly expect businesses to focus on, most FTSE 100 companies have an ESG or similarly named section in their Annual Report. 

However, more and more FTSE 100 companies are coming to understand the significant and intrinsic link between their ESG performance and the overarching success of their business. As such, they increasingly adopt an ‘integrated’ approach to reporting, whereby ESG information features in some or all key sections of the report.

Therefore, in terms of best practice, a key indicator of a company’s ESG commitment involves it having ESG-related discussions integrated throughout its Annual Report.

Our findings

In the context of our ‘Reporting Matters 7’ study, our key findings are as follows:

• One-third of our sample primarily discussed ESG in a designated section of the report with brief mentions elsewhere.
• 87% of sampled companies have chosen to adopt a substantially ‘integrated’ approach.
• Leadership statements were the most common section of the Annual Report to hold ESG content.
• Risk management sections were the second most common section of the report to feature ESG discussions.
• There was a severe lack of ESG integration highlighted in the corporate purpose statements.
• Only 9% presented a group rationale linked to ESG, meaning businesses should do more to underline the credibility of their ESG commitments by linking ESG to their corporate purpose and strategy.

Our recommendations

• Demonstrate the link between corporate purpose and ESG.
• Detail the key capitals used to create and sustain value and give examples of how a sustainable business creates value.
• Address long-term sustainability commitments and sustainability performance in your leadership statements.
• Reference relevant sustainability principles in your strategy.
• Outline key non-financial risks and opportunities.
• Add non-financial performance to the key highlights, alongside financial and operational performance, to demonstrate equal footing.

At our launch event on 13 July, Luminous’ Stephen Butler, Investor Engagement & ESG Disclosure Director, Rachel Madan, Sustainability & Impact Director, and Nina Kefer, Consultant, along with Richard Davies, Managing Director of RD:IR, shared the outcomes of our proprietary research. They also offered practical advice on defining, reporting and engaging around ESG strategy, as well as how to optimise your ESG in your Annual Report and investor days.

If you would like to access the recording and slides from our event, please get in touch.

Stephen.Butler@Luminous.co.uk