Finch & Beak’s State of ESG 2023 report underlines that worldwide we are encouragingly making progress on standards, target setting, business transformation and implementation of metrics. However, we’re still in dire need of further acceleration of business to counter the climate crisis and achieve the Sustainable Development Goals. During the webinar the four key takeaways of the report were explained in further detail.

1. The ESG Reporting Trap is Alive and Kicking

Many companies participating in ESG ratings are struggling with the big number of ratings on the market; during the webinar, it was indicated that almost 40% of companies respond to 6 or more benchmarks. However, the various benchmarks on the market are very different in requirements and focus areas, which makes it burdensome for companies to respond to all of them and goes at the expense of generating real impact.

Although it is not easy to overcome this trap, it is recommendable that companies to streamline the reporting toward the most prominent sustainability ratings, based on their richness and reach. This analysis is a valuable fundament for further streamlining the ESG benchmarks and conducting a gap analysis. This gap analysis should be based on a comparison between the current status and the requirements from ratings and reporting standards, departing from your most important material issues. Once the gaps are clear, it is important to focus on the effective execution of improvement steps.

Looking at important ESG benchmarks, the Corporate Sustainability Assessment (CSA) by S&P Global is one of the most detailed and widely recognized ratings. After the latest announcement of the DJSI results, it could be observed that in 2022, the CSA was open for a larger number of companies, saw higher levels of active participation, and was characterized by challenging methodology updates such as Climate Strategy and Biodiversity. After two years of absence, Finch & Beak is organizing an in-person Expert Training focusing on the Corporate Sustainability Assessment on 1-2 March 2023 in Amsterdam, which is now open for pre-registration.

2. Engaging your Board 2.0

The biggest challenges discussed in boardrooms today are those that are impacting the future of the business, of which some are directly related to ESG (such as climate change). As boards are moving from hindsight to oversight, and now more into foresight, their role is shifting from checking balances and safeguarding the interests of shareholders to a more long-term perspective, taking into account the interests of all key stakeholders.

With this in mind, more and more board members are seeking to understand how ESG is expanding board members’ fiduciary and accountability duties in their role as stewards of the company’s long-term success. To achieve the next level of board involvement in the company’s ESG journey, the following three steps are important:

1. Training board members on sustainability
2. Closely involving senior leaders in ESG strategy development
3. Formalizing sustainability governance from shop floor to boardroom

3. Leveraging TCFD: Looking at Risk and Opportunity

The recent development in regulations shows that TCFD is becoming an increasingly important tool to help organizations to understand and prepare for climate-related risks as well as to capitalize on climate-related opportunities. It is mandatory for UK listed companies and also incorporated into the EU’s Corporate Sustainability Reporting Directive.

Regarding climate change and its impacts, opportunities that could possibly arise are often underestimated, such as business decarbonization or technology development. Finch & Beak’s ESG Market Survey showed that only 23% of respondents’ companies have fully embedded the TCFD recommendations into the risk management approach and in public reporting. The TCFD roadmap will help your company to successfully implement the recommendations.

Even companies that might think that they are not impacted by climate change can benefit from conducting a risks and opportunities analysis. As an example, Josephin mentioned service companies (e.g. employment agencies) and potential opportunities which can arise from a scenario analysis, such as improvement in reputation, especially focusing on the war for talent. Especially younger candidates show environmental consciousness and could prefer working for companies with a clear climate plan.

4. Increased Scope of Company Boundaries

Regarding the different topics which are required in ESG ratings, the survey reveals that Supply Chain Management was identified as the most challenging one, followed by Climate Strategy and Environmental Performance. When asked about the implementation of sustainability programs, 75% of respondents cite collecting and managing ESG data across the value chain as a key challenge. Surprisingly, only 20.5% are already using supplier engagement as an instrument.

As a first step to collecting and managing supply chain insights, companies are advised to identify impact hotspots to take targeted action, for instance through life-cycle assessments. To further proceed, organizations should harness the power of digital for data & traceability and finally set up value chain partnership structures.

Would you like to know how to accelerate your company for its 2023 ESG journey?

Download the ESG Acceleration Tips for 2023 at the top of this article to better understand where to play and how to win in ESG in 2023. The report also marked the launch of the ESG Ratings Expert Network: a virtual, global platform for ESG professionals to facilitate networking, build capacity and grow competence on ESG ratings & rankings among practitioners.

If you would like to pre-register for the Expert Training on 1-2 March 2023, learn more about the ESG Ratings Expert Network or discuss your company’s own ESG challenges, get in touch with Johana Schlotter, at johana@finchandbeak.com or call +31 6 28 02 18 80.

^{Photo by Alan De La Cruz on Unsplash}