The economic risks and opportunities related to climate change and sustainability have led to the increasing trend of businesses disclosing their climate risks and non-financial information. They are integrating sustainable practices across their activities. Board diversity, local communities' engagement, human rights and ethical issues in supply chains have become the main imperatives that will enable businesses to thrive. Focus on environmental, social, and governance (ESG) issues is rising amid increasing investor interest and regulatory requirements. As ESG becomes a more prominent business priority, it has also become a growth opportunity for firms looking for new revenue streams, trying to identify the best patterns to navigate through the new ESG environment.
Morningstar reported that sustainable investment reached a record in 2020. According to Bloomberg, ESG assets are estimated to reach $41 trillion by the end of 2022. Industry group Global Sustainable Investment Association estimates ESG-related assets account for one in three dollars managed globally. Moreover, sustainability-linked bonds and loans have a large role to play and are strongly linked to ESG goals. They are now identified as performance-based instruments, which show investors the strengths and weaknesses of companies with regards to their ESG performance.
To prove the reality of it, Dow Jones recently announced the launch of its innovative sustainability data, which aim at enabling investors and asset managers to understand company ESG performance and enhance ESG portfolio strategies. The data provides sustainability scores on 6,000 publicly traded companies, rated across 26 sustainability categories and the model is aligned with the Sustainability Accounting Standards Board (SASB) standards.
Disclosure-focused regulatory activity in the US has also been accelerated by rules and proposals of the Securities and Exchange Commission (SEC). SEC is intent on increasing mandatory disclosures on climate-related matters in 2022, which are going to change the existing public-company disclosure regime. Mandatory and consistent disclosure will enable companies to gain competitive advantage, ensure a better reputation, get ahead of regulatory changes and identify the investors’ demands. They will require enterprise-wide changes on how climate-related data are collected and assessed.
The COVID-19 pandemic is another aspect that has strengthened the focus on business continuity, employee health and safety, supply chain management and environment preservation. It worked as an accelerator for Sustainability and put the focus on the social aspect (“S”) of ESG, while revealing the effectiveness of a company’s governance structure and the extent of its resilience.
Companies and organizations must change their business strategies, integrating ESG not only in their operations and supply chains, but also in the way they communicate with their invertors and other key stakeholders. To tackle the new challenges and adapt to the new ESG reality, companies need bold and qualified leaders with specialized knowledge to guide them on to their sustainable future. Now millions of new jobs are created globally due to new climate policies and sustainability commitments. The International Labor Organization (ILO) estimates that 24 million jobs worldwide could be created by the green economy by 2030 alone. This new generation of sustainability leaders are required to have specialized knowledge, specific skills, and a deep understanding of the economic, social, and environmental intersection.
In the race towards sustainable transformation, which not only seems inevitable but also bears significant financial and other benefits, companies have a lot to learn from those getting it right.
The Top 10 ESG performing companies in 16 different sectors who seem to be getting it right were identified by the 2021 Annual Research into ESG Ratings and Sustainability Reporting Trends of the Center for Sustainability and Excellence (CSE) in N.America. The research found strong evidence on strategies and common standards amongst companies that stand out for their high ESG performance. CSE consolidated scores per company from several ESG rating agencies (e.g., CSRHub, MSCI, CDP, Sustainalytics) and analyzed ESG reporting practices and standards/frameworks used (e.g., SASB, TCFD, GRI, SBTi ).
The findings further demonstrate a significant increase in the use of ESG standards (e.g GRI, SASB, TCFD) from leading companies. Among the most interesting findings is that more than 55% of the Top 10 ESG performing companies produce stand-alone Sustainability (ESG) Reports, while 60% of them apply the GRI Standards. Additionally, SASB Standards are used by 56% of the companies under investigation, TCFD recommendations by 30% and the Science-based Targets for GHG emissions reductions by another 30%.
Additionally, most of the Top 10 Leaders have committed to ambitious ESG Goals, including becoming net zero by 2030 and publishing their ESG ratings.
The key success factors above inspired CSE to create an Integrated Sustainability System Methodology, and the ESG Estimate tool to guide and support companies to a successful integration of ESG criteria.
It seems the new way of doing business is essentially a long-lasting sustainability transformation to ensure growth, agility, and good risk management. Leading companies are adopting a more strategic approach towards ESG and making use of specific global standards and frameworks. This allows for better consolidation of scores, easier comparability, and greater transparency for all stakeholders.
CSE is proud to be leading the Sustainability transformation of companies and organizations around the world, through specialized Certified Training Programs, Online Courses and Sector-specific, Integrated Consulting Services.
See more: www.cse-net.org
Nikos Avlonas is Founder and President of the Centre for Sustainability & Excellence (CSE) a global Sustainability Strategic Advisory and Training firm with activities in North America, Europe, MENA and Asia. He is a recognized leader who has received multiple awards in Corporate Sustainability and Social Entrepreneurship. Nikos has been named to 2021 Environment+Energy Leader 100 Honoree List, awarded in 2018 by Silicon Valley Community Foundation and in 2017 by PR News as Practitioner of the year for setting new standards of excellence.
He is a well-known international speaker in topics related to ESG and CSR. He is currently an Adjunct Professor at University of Illinois(UIC) in Chicago and awarded visiting Professor at Athens University of Economic and Business (AUEB), MBA international program since 2015.
