Most people will be glad to see the back of the first half of 2022. A major war in Ukraine, fires, flooding, rampant inflation, starvation and millions of refugees indicate the world is in a more precarious place.
Companies everywhere are apprehensive about the year’s second act. Environmental, social and governance (ESG) topics will play a major part in their strategic outlook in the short and medium term.
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1. Crisis of confidence. Just under two-thirds (63%) of board directors and senior business executives do not feel ready to meet their ESG goals and governmental disclosure regulations. According to a new Workiva report, ESG Reporting Global Insights 2022, environmental challenges top the list:
- Achieving investor-grade carbon disclosures
- Calculating greenhouse gas protocols for Scope 1, 2 and 3 emissions
On top of that, 72% don’t have confidence in the data being reported to stakeholders.
On the positive side, just over two-thirds of those surveyed have put in place specific roles and people for ESG reporting and initiatives. ESG reporting is full of plusses, too:
- Customer retention and recruitment (72%)
- Cost savings (71%)
- Insurance or credit agency engagement (71%)
- Reduced long-term risk (71%)
Workiva’s report came from a survey of more than 1,300 senior business leaders across many sectors and 13 countries.
2. Play to pay. Hewlett Packard Enterprise (HPE) has become the latest major company to tie executive pay to climate-related targets. According to its seventh annual Living Progress Report, members of the executive will have part of their bonus pay tied to HPE’s carbon emissions. On top of that, all vice-presidents and above must complete a mandatory climate training program to help them create action plans that mitigate the impact of climate change across the organization. HPE has also brought forward its net zero goal by 10 years to 2040.
3. Cracking the code. The Institute of Directors in the UK has recommended that the government create a new voluntary code of conduct for board directors, rather than more formal regulations. Its new policy paper argues that introducing further rules “runs the risk of inducing a counterproductive focus on compliance” rather than letting boards have wiggle room to be strategic and innovative. Similar codes of conduct already exist in other countries such as South Africa, Hong Kong and Singapore.
4. Ballots cast. It’s been a mixed proxy season thus far for those keen on green economy-related proposals. According to research from the Sustainable Investments Institute (Si2), there has been a record number — 274 — of sustainability proposals to date in 2022. On the table for companies were topics such as racial justice, reducing plastic waste and the financing of fossil fuels. However, support for these types has fallen compared with the previous year, from 32% to 27%. Fast-food chains McDonalds, Burger King and Jack in the Box have all been in the green investor spotlight.
5. EU tightens sustainability reporting. There has been good news for investors wanting clearer and more accurate information from European companies. The Council of the EU and the European Parliament agreed last week to tighten the rules in the Corporate Sustainability Reporting Directive (CSRD). The changes mean that European companies will have to have their sustainability reports independently audited. The rules, which will now affect more than 50,000 companies, now also cover large non-EU organizations. Included in the new reporting are issues ranging from environmental rights and human rights to social rights and governance considerations.
Mathew Loup is Competent Boards’ Director, Marketing & Communications. Connect with him on LinkedIn.Back To News & Views