An overwhelming number of current environmental, social and governance (ESG) metrics are inconsistent, can be confusing, and at times misleading, according to a new study.
Deloitte Global recently conducted 25 interviews with global leaders from the investment community, business world, academia, and non-profit sector. All agreed on the pressing need to close the gap between lofty climate pledges and quantifiable change.
The study identified six conditions needed to catalyse the adoption of sustainability reporting and to create a broader operating environment conducive to widespread behaviour change.
Adopt a globally consistent baseline
Global leaders were consistent in their calls for the continued adoption of common standards by the International Sustainability Standards Board (ISSB), which could dramatically reduce fragmentation, complexity, and cost. Leaders also want an initial shortlist with clarity around disclosures and timeframes, with additional metrics to be added over time. Continued support for the ISSB to expedite the development of these standards is paramount.
Ensure data is relevant and reliable
A BlackRock survey of 425 investors across 27 countries found that 53% of respondents cited poor quality and insufficient availability of ESG data as a barrier to sustainable investing. Companies can often be selective in what they report, failing to give a fair and balanced view of their efforts and actions. In order to improve the quality of reporting, companies must factor in investment in new processes and a willingness to deliver an honest narrative of performance.
Integrate sustainability into business models
Another recent Deloitte Global survey revealed that only 52% of audit committee respondents believed their companies had the information and capabilities to fulfil their responsibilities with respect to climate change. The survey highlighted that sustainability must be embraced throughout the organisation, through employee training, executive incentives linked to sustainability outcomes, and a redefined governance structure. This should be seen as a business opportunity rather than a compliance one.
Establish policy interventions and legislative change
Market forces alone cannot deliver the change needed, collaboration between the public and private sectors is crucial. This means interventions and mechanisms of enforcement to eliminate greenwashing and fraud. Financial services, such as banking, insurance, and pension funds, have a key role to play in accelerating change, both in funding sustainable initiatives and in not financing high-emission ventures.
Empower stakeholders through transparency and simplicity
Sustainability information needs to be targeted to the right audience since stakeholders (e.g., investors, customers, suppliers, and employees) are varied in their needs and knowledge. Educational tools could help stakeholders navigate what is most relevant to them. Additionally, long-term plans should be coincided with regular progress reports to ensure they’re kept on track.
Drive change holistically
The change needed requires a coordinated approach between sectors and industries and throughout supply chains. System-wide engagement with industry peers committing to accountability can drive rapid behavioural change. Government, large businesses, and broader society must work together to achieve their shared sustainability objectives.
These six conditions, the result of the 25 interviews, can hopefully improve transparency and decision-making around climate reporting – helping drive system-level behaviour change. Sustainability reporting is about creating an environment conducive to positive change, helping companies accelerate their path to prosperity and improve prospects for all.
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