BUILDING A COMPLETE ESG PICTURE
The bar is rising on expectations of corporate sustainability. Scrutiny from regulators, investors and the public requires that companies have a comprehensive understanding of how their activities impact people and the environment, and that they are transparent and responsible about it.
The push for sustainability is calling into question traditional definitions of the purpose of the firm to reflect the view that businesses have a responsibility to create value for society as a whole, as well as for shareholders.
Responding to heightened ESG pressure
An evolving regulatory landscape heightens the urgency for business leaders to implement sustainability strategies that take an enterprise-wide approach. Cooperation and interaction between functions will be essential for corporations to recognise risks and opportunities arising from sustainability and to embed environmental, social and governance (ESG) principles into the firm’s strategy, objectives, culture and operations.
In Europe, new mandatory sustainability disclosures required under the Corporate Sustainability Reporting Directive (CSRD) will adopt a ‘double materiality’ principle. Based on standards drawn up by the European Financial Reporting Advisory Group (EFRAG), the European Union (EU) law will therefore require companies to report on how ESG issues impact them, and also how the companies themselves impact the environment and society.
ESG disclosures must be clear, truthful and comprehensive. Failure to meet this standard carries financial and reputational risk. ‘Greenwashing’, whether inadvertent or deliberate, and the misreporting of ESG has led to complaints being filed by activists and regulators. ESG-related risks can have a significant impact on performance and share price, especially in sectors with significant exposure to environmental or social risks.
Apr-Jun 2023 Issue
Federation of European Risk Management Associations (FERMA)