Meeting investors’ ESG disclosure needs

The recently formed Value Reporting Foundation (VRF) hosted a webinar last week on ‘How Investors Use Your ESG Disclosures’. A summary of the key points is outlined in our blog.

Investors have a growing interest in sustainability and Environmental, Social, and Governance (ESG) to make for transparent and efficient capital markets. With an increase in intangible asset value over time, investors are very interested in ESG factors as they can really affect intangible market value and help them make informed, data-driven investment decisions. However, investors still remain dissatisfied with patchy ESG information disclosed by companies.

Given the external environment, it was useful to attend the Value Reporting Foundation’s (VRF) webinar titled ‘How Investors Use Your ESG Disclosures’ last week. The webinar explored why investors want companies to use SASB standards for investor-focused ESG disclosures. It also provided an insight into how companies use the resulting disclosures in investment and stewardship processes, helping to build the case for SASB adoption within companies and better meet the needs of investors.

The webinar emphasised it is crucial for long-term investors to integrate ESG analysis into their investment due diligence and asset management processes. Additionally, it was clear that investors want to monitor material ESG risk and opportunities throughout the life of their investments. For this to be realised, a speaker from UBS Management believes that SASB complements a mosaic of data used to evaluate companies and decide whether to invest or not.

In conjunction with investor needs, the webinar identified that investors raise most of their concerns on the usefulness and effectiveness of ESG reporting. Without standards, companies use an array of metrics to describe the same thing, leading to very different interpretations of performance. Therefore, investors find evaluating performance on critical issues challenging.

Luminous’ top 10 tips for engaging and communicating ESG data to investors

In the context of these challenges, Luminous has put together the following tips for improving your ESG disclosure and reporting:

1. Establish a clear link between ESG and your corporate purpose. 
   
   
2. Incorporate long-term sustainability commitments and performance in your leadership statements. 
   
   
3. Carry out a double materiality assessment to identify the ESG issues that are material to your company and present them in a materiality matrix or heatmap.
   
   
4. Consider using the SASB Standards to help you focus on what you should be reporting on and provide good indicators of materiality. This is because the materiality map is organised along industry-specific metrics where financial metrics alone cannot help.
   
   
5. Adopt a responsible sustainability strategy anchored on the identified material issues to explain their importance for the long-term success of your company and make sure this aligns with your corporate strategy and purpose.
   
   
6. Profile key non-financial risks and opportunities. 
   
   
7. Set time-bound KPIs for each material issue, focusing on appropriate short- and long-term goals across the value chain, and report year-on-year progress against them and present these in a dashboard in your annual report.
   
   
8. Disclose your ESG governance structure, preferably using an organisational chart, and explain the role of the person or committee in charge of ESG.
   

9. Integrate ESG analysis into your due diligence around managers and assets.
   
   
10. Consider disclosing a personal letter or Q&A with the head of your sustainability committee in the annual report to show personal responsibility.

In conclusion, the webinar provided a fascinating insight into how portfolio companies are using ESG data in their processes and why investors are calling on companies to use SASB. For more information on answering this call from investors, please get in touch:

stephen.butler@luminous.co.uk

Register for our event on ‘Reporting Matters 7: ESG integration in the FTSE 100’.

Listen to our podcast on double materiality.