Whether you are part of a young growth company seeking initial recognition or a more established company, you probably find you are constantly competing for capital with other companies. One powerful way to distinguish yourself is with a carefully crafted environmental, social and governance (ESG) message.
Bear in mind that having strong ESG (as well as human capital) performance is one thing—but getting credit for that performance requires that you tell your story very effectively. For this reason, we focus equally on ESG performance and communications.
Increasingly, failure to disclose a coherent ESG strategy can mean companies are penalized in several ways, including:
1. Decreased demand for your company’s stock. According to the U.S. Forum for Sustainable and Responsible Investment (USSIF), assets invested using sustainable investing strategies are growing rapidly:
2. Activist targeting. Activist investors increasingly incorporate ESG issues into their platforms, targeting companies with stories perceived to be weak in this regard. Additionally:
3. Increased cost of capital. Credit rating agencies, including S&P Global Ratings, Moody’s and Fitch Group, are increasingly incorporating ESG considerations into their credit rating calculations.
At DFIN, we are working with hundreds of companies to either initiate ESG reporting, or finetune and expand existing programs. Many of these companies’ C-suites and boards express concerns about the plethora of ratings, rankings and reporting frameworks out there, some stating that this lack of clarity is inhibiting their embarking on their sustainability and disclosure journey. We frequently are asked:
Fortunately, there is good news on this front. In September 2020, five major organizations—the CDP (formerly the Carbon Disclosure Project), Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB)—issued a “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting.” This news was followed by the November 2020 announcement that the IIRC and SASB would merge and form the Value Reporting Foundation, with the aim of providing investors and companies with a unified, comprehensive corporate reporting framework.
As a sign of further momentum, at the UN Climate Change Conference (COP26), which concluded in Glasgow, Scotland, on Nov. 12, 2021, it was announced that the newly created International Sustainability Standards Board (ISSB) will further consolidate ESG reporting standards and frameworks, including the Value Reporting Foundation and the CDSB. Stay tuned for further action on this front.
The SEC has announced plans to propose rules requiring climate-related disclosures in public filings, according to SEC Chair Gary Gensler. These rules may clarify issues such as appropriate reporting standards, emissions reporting and other relevant benchmark criteria. We can’t predict the timing or nature of this rulemaking, but the very fact that the SEC is focusing on climate-related disclosures is worth noting.
While the convergence of voluntary reporting standards is a welcome development, neither that nor any updated SEC guidance should discourage your company from initiating or progressing on your sustainability and disclosure journey. Remember that investors and other stakeholders are watching now, so companies can’t afford to wait.
DFIN, along with our sustainability reporting partners the Governance & Accountability Institute (G&A) and Diligent ESG, are working with hundreds of companies to either initiate reporting, or finetune and expand existing programs.
DFIN has identified five key steps for companies to focus and drive their ESG processes:
1. Select material indicators. While the major materiality and reporting frameworks aren’t yet fully integrated, there is substantial overlap among them. Focusing primarily on SASB, GRI and TCFD, we select five to seven material indicators relevant to your industry group and for which your company will have important information to disclose.
2. Conduct a peer review. Given the relative nature of ratings and rankings, analyzing peer disclosures (proxies, 10-Ks/ARs and websites) can identify industry-specific topics not captured in step one, and also establish what it would take to match or exceed the disclosures of your peers.
3. Identify thematic messaging. Based on steps one and two, you may have identified seven to 10 topics as the foundation for your ESG program and disclosures. Here, for communications purposes, we distill these topics down to three to five thematic tenets (e.g., “our people,” “our purpose,” “our planet”). These tenets are then harmonized and reinforced throughout all reporting channels.
4. Create content. We help you identify subject matter experts (SMEs) and establish working groups to collect, update and maintain relevant data. Our ESG consultants, analysts and writers then advise on and/or draft content that meets the above-described materiality and thematic messaging criteria.
5. Develop infographics. Our creative designers transform ESG text and data into marketable documents via impactful design in harmony with your company branding.
The good news is that this five-step process is repeatable and equally applicable to your proxy, annual report, website and ESG/CSR report development. Following these steps helps ensure consistent prioritization of materiality topics—and of messaging—across your various documents and channels.
There’s no reason to postpone the next step of your ESG journey. DFIN is ready to help you establish a structure and repeatable process for both regulatory and voluntary ESG disclosures.
To discuss your unique situation and identify where we can add the most value to your current process, please contact Ron Schneider, Director, Corporate Governance Services, at firstname.lastname@example.org. For examples of a range of DFIN client proxy ESG and HCM disclosures, see our Guide to Effective Proxies, 9th edition, at www.proxydocs.com/xDFINx.
Ron Schneider is the Director of Corporate Governance Services for DFIN. He can be reached at email@example.com.
DFIN is a leading global risk and compliance solutions company. We provide domain expertise, enterprise software and data analytics for every stage of our clients’ business and investment life cycles. DFIN SaaS offerings, including eBrevia—data extraction powered by Artificial Intelligence, Venue Virtual Data Room and ActiveDisclosure, support critical issues with teams working remotely, specializing in enhanced security and workflow management tools, and providing innovative ways to collaborate, exchange and manage SEC compliance and transactions.