In our regular column for Wind Energy Network, we continue to address key areas of focus to help businesses align with sustainable ESG values.
As a compliance area, ESG is about as broad as it gets and can be bewildering to address. However, compliance is not something that can be “done” all at once. Rather like anti-money laundering or data privacy, this is an emerging and ever evolving area of risk. Compliance is, in other words, more of a marathon and not a sprint.
First Steps to ESG Compliance
- The first steps need to come from the top: the challenges associated with compliance are going to be most effectively faced up to through changes to a company’s culture.
- A company should consider whether one director should be appointed to lead on climate and ESG issues. It needs to be the responsibility of someone who has the necessary authority to think through, to make and to implement decisions.
- The company may need to make ESG part of the terms of reference of a board committee. Either way, the first task of those responsible should be to identify any transitional risks posed to the business whether these are direct or indirect. These might include new regulations, investor reporting trends, or risks to crucial supply chains.
Communications – Internal and External
ESG communications are key. These will play an instrumental role in changing a company’s culture as well as meeting the demands and requirements of investors, providers of finance, insurers and potential M&A partners. It is worth considering forming a cross-functional team to avoid the risk that ESG becomes stuck in a compliance silo.
Annual reports are one of the major tools which companies can use to communicate their ESG credentials to interested lookers on. Although normally reserved for investors, annual reports are now being scrutinised by a wider group of stakeholders. Companies are being taken to task on statements they make in reports and attempts by firms to ‘greenwash’ their ESG credentials are being exposed ever more ruthlessly. Importantly, the risks associated with greenwashing are coming home to roost, in some cases through litigation.
ESG reporting is still, for most sectors, voluntary and there is a view that the litigation risk associated with over-promising means less is more.
Steps that companies can take towards ESG compliance in the coming 12 – 18 months include:
- Appoint a director to take responsibility for ESG compliance and implement cross-company reporting and communications
- Commission a gap analysis - identify what you already do, what you disclose in relation to climate change and other ESG issues that are particularly salient to your business
- Map stakeholder involvement
- Compare current reporting to the recommendations of organisations such as the United Nations Principles of Responsible Investment or the OECD’s Task Force on Climate Related Disclosures
- Budget for ESG training and awareness
- Be alert to changing reporting requirements and regulations.
Looking to become ESG compliant?
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