What does the future of ESG reporting look like?
Shelton Stat of the Week
Only 40% of Americans say they understand the term “Carbon Neutral,” and only 34% say they understand “Net Zero.”
Eco Pulse®, 2022
Like too many things in the U.S. these days, the acronym ESG (Environmental, Social, Governance) has become a polarizing, politically-charged term. Much of this is due to a misunderstanding of what ESG scores actually measure.
For many people ESG is synonymous with sustainability and social impact. This is useful shorthand, but it keeps the definition of ESG vague. We can build on this understanding by emphasizing what ESG scores actually measure: a company’s ability to withstand the risks associated with various environmental, social and governance factors stemming from climate change and other issues.
This misperception, combined with a lack of standardization, has led to a general skepticism that has spread to the reporting scene. Moving to standardized reporting appears to be the best way to accurately measure a company’s performance, risk and impact.
A move toward standardized reporting could turn what we now see as ESG reports into something more closely resembling an annual financial report. While this would be a positive step in being able to get an accurate picture of a company’s improvements and performance vs. peers, it’s not a very effective way to communicate with non-investor audiences.
What does this mean for a corporation looking to tell its story to a broader audience, and for the future of ESG reporting as we know it? We think it means that it’s more important than ever to share your story in your way on your terms. See our last post for more on how to do this; here’s an additional list of approaches to consider:
- To disperse data to a broader audience, bring it to life through visuals and storytelling.
- Back data up with a narrative that transparently lays out your company’s ESG journey and reports on where your company is today, not where you think it should be.
- Focus on what you are tracking and spend time explaining your process for tracking missing data in the future.
- Transparency builds trust. Stakeholders don’t expect a company to be perfect, but they do want them to be honest. Acknowledge areas where efforts have failed or haven’t begun. Include details on how you plan to move forward.
- Instead of talking about your efforts from the company’s standpoint, focus your storytelling on the individual employees or groups who are in the trenches. Direct, personal experiences bring ESG to life.
Finally, don’t wait until you have it all figured out to start reporting. Report where you are now, where you plan to go and how you plan to get there.
Subsequent reports can provide updates on goal progress as well as explaining successful processes, efforts that missed the mark and goals that you recognized were unrealistic.
ESG critics might just be the push that ESG needs to become better standardized. This Fortune article details overlooked efforts of companies to improve ESG reporting and fund understanding by ESG critics and how they might lead to a new and improved version of ESG as we know it.
Many of ESG’s problems arise from its complexity and unknown universally accepted paths forward. Unsurprisingly, every stakeholder has their own opinion on the best way forward. This Morningstar piece walks through the main obstacles to reaching a set of international reporting standards.
Shoptivism: Why Consumers (& Job Seekers) Opt In & Out of Today’s Brands
Every year we ask Americans if they’ve ever intentionally purchased or not purchased a product or service based on the social or environmental record of the manufacturer. We then ask everyone who says “yes” to name the brand. Those who say “yes” and can give an example of a brand unaided? We call them shoptivists.
But who are these “shoptivists?”
Our latest report answers this question with three distinct consumer profiles, including details on their mental models, their shopping patterns, the messages that resonate, and where to find them.