Although direct incentives from investors for positive ESG performance is not yet mainstream, access to capital has traditionally been a driver for sustainability. This has led to a boom of public non-financial information coming from companies disclosing environmental, social, and governance (ESG) information in their annual report and increasingly in benchmark questionnaires. Although there is no legal obligation to participate in any ESG benchmarks, companies choose to participate to showcase their sustainability efforts. However, due to the proliferation of these benchmarks, companies often feel overwhelmed and end up spending too much of their time on reporting at the expense of generating real impact.
A useful way to determine which benchmarks to focus on is to compare the richness and reach of benchmarks, as well as their connectivity. First, it is important to understand the differences between the benchmarks in terms of background, rating scale, methodology, usage, and reputation, explained in the Davis Polk download. Next, companies should compare if they want to focus on richness or reach, explained in detail in the article “Balancing Richness and Reach for more focused reporting” published in March and summarized as follows:
Finally, connectivity is key to determining how the benchmarks are connected to each other in terms of major overlaps or gaps in terms of methodologies. To connect the dots, we propose the following steps:
As more and more ESG information becomes public, companies are finding themselves lost in the data unable to accelerate sustainability performance. To overcome this challenge, companies should develop a more strategic approach to reporting ESG information that allows them to maximize the value of ESG efforts. To further encourage ESG performance, investors have an increasingly important role to play by, for example, connecting performance and access to capital. And taking it a step further, through engagement and active ownership with a mutual commitment from companies and their investors will accelerate sustainability performance when they are “putting money where the mouth is” into practice.
Finch & Beak has over 20 years of experience helping companies accelerate their sustainability performance by focusing on ESG topics that matter most. Please contact Bas Nuijten, Senior Consultant, at email@example.com to build a business case for sustainability by identifying your focus areas through our ESG connectivity analysis and materiality assessment.