Back in 2000, CDP’s decision to ask every business worldwide to disclose its climate change-related data seemed to many to be over-ambitious. Recently we have seen a dramatic upswing in the importance the business and financial community attaches to ESG issues, partly due to an increasing frequency and severity of extreme weather events and widely publicized human rights-related investigations.
This means strong management and reporting on ESG issues, such as a business’ relationship to environmental impacts, alongside health and safety and board diversity are considered essential by major shareholders and executive teams. More than 7,000 firms now provide data not only on climate change but also on water, forests and supply chains through CDP.
It’s now clear that ESG factors not only affect natural resources, climate stability and human well-being, but can also impact sales, profit margins and return on investment – and investors realize this. At CDP, we work with more than 500 investors with $96 tn in assets under management that request information from issuers on climate change, water or forests every year. They want to ensure the companies in which they invest are dedicating time and resources to managing these and other ESG issues.
Ten years ago, this type of data was seen as a nice to have, but today it’s clear investors are making ESG data a core part of their analysis. A 2018 report by Morgan Stanley finds 84 percent of asset owners are integrating ESG criteria into their investment process.
Becoming a leader on ESG is vital for businesses that want to thrive, and it’s not surprising that around 85 percent of S&P 500 companies published ESG reports in 2017, according to the Governance and Accountability Institute. Producing and disclosing reliable data on ESG issues sits at the heart of this leadership. Companies that collect this data are able not only to manage their risk exposure but also to tap into opportunities that arise from a deeper understanding of their business’ interaction with environmental and human capital issues.
The disclosure landscape has changed hugely in recent years thanks to some well-regarded frameworks and reporting tools designed to help issuers understand how their business is exposed to ESG risks and opportunities. The CDP disclosure platform is a good first port of call for corporates, providing a global standard and bespoke sector-by-sector frameworks to allow businesses to report on a range of environmental impacts.
Issuers keen to evaluate which ESG reporting platforms and frameworks would best support their business should turn to the Corporate Reporting Dialogue, a project we are part of that works to ensure better alignment among standard setters, such as the Climate Disclosure Standards Board, the Global Reporting Initiative and the Sustainability Accounting Standards Board, making it easier for companies to prepare effective, relevant ESG data.
Those newer to ESG need to get on board quickly. Investors are increasingly demanding more robust and comprehensive management of these issues. For example, groups like the Investor Agenda, a 420-strong investor initiative with more than $32 tn in assets, is implementing the goals of the Paris Agreement, including calling on governments at COP24 to step up action to address climate change.
No business can afford to ignore ESG. Issuers that spend time compiling these vital metrics and ensuring they are core to their overarching business strategy will reap the rewards. Those that don’t take action will get left behind.
Paul Simpson is CEO of CDP
This article originally appeared in the Summer 2019 issue of IR Magazine.
