4 ways ESG disclosures are transforming how successful companies operate

The global transition toward environmental, social and governance (ESG) in business is changing the world, making a tangible difference the world over.

While ESG disclosures have long been voluntary, there is now a tectonic shift underway. Mandatory ESG regulation efforts in the European Union, the US, and internationally are picking up pace.

Coupled with increasing stakeholder focus on company ESG performance and concerns over corporate greenwashing, these regulations could have a far-reaching impact, on anything from raising capital to talent acquisition.

It is critical that companies report consistently and transparently on environmental and social risks. The World Economic Forum’s Stakeholder Capitalism Metrics Case Studies series highlights major companies where reporting on ESG — and the Forum’s flagship Stakeholder Capitalism Metrics — is making a tangible difference. Here’s how.

ESG disclosures are changing how companies identify internal gaps.

French multinational energy company Schneider Electric has been issuing disclosures on sustainability for over a decade, adopting new solutions to identify internal gaps and address sustainability as a strategic issue.

In 2020, the company pioneered a first-of-its-kind biodiversity footprint assessment with CDC Biodiversité. However, it was still challenged by the Forum’s metric on land use and ecological sensitivity, which requires companies to “report the number and area of sites owned, leased or managed in or adjacent to protected areas and/or key biodiversity areas” — not something Schneider Electric had measured historically.

Reporting on the Forum’s metrics resulted in Schneider’s new approach to biodiversity, prompting the company to adapt its reporting and set specific biodiversity action plans for all sites.

As biodiversity risks rise in prominence, the role of businesses in addressing them is coming into focus. To keep up with the evolving ESG reporting landscape, companies must start analyzing their biodiversity footprint to understand its impact and set specific targets.

ESG disclosures are changing how teams collaborate.

Like many other large public companies that have been reporting on sustainability for years, Bank of America had a network of internal individuals already focused on ESG reporting, each with their own relationships with standard-setters. It was important for the bank to strengthen discipline around reporting ESG information and establish processes and controls that will in time reach the same level as financial reporting.

Adopting the Stakeholder Capitalism Metrics proved integral to building consensus and getting the bank’s internal ESG standards centers to collaborate with other departments.

Since integrating the Forum’s metrics into its annual report, the bank has observed closer engagement between its ESG reporting functions and the finance and accounting functions. Key to this convergence was establishing an executive ESG disclosure committee and involving the Chief Accounting Officer and his team in the reporting process from the beginning.

As ESG touches almost every part of a business, facilitating collaboration between teams is essential to success in ESG reporting.

ESG disclosures are helping companies leverage data.

Ecopetrol, Colombia’s state-owned energy company, needed an ESG reporting solution that averted overload and ensured they could prioritize reporting the information that generated value for their stakeholders.

It prioritized the role of technology, and now uses an online database to collect data for disclosure on its Technology, Environmental, Social and Governance (TESG) agenda.

Ecopetrol has found that technology provides agility and traceability to the data collection process. Using an online database has streamlined the collection of sustainability information — the company now has one place that holds all the indicators and information that measure its TESG agenda, with all the necessary evidence to be disclosed to stakeholders.

Leveraging technology to measure and report concrete and reliable ESG data helps companies establish transparency, trust and accountability in their sustainability goals, reinforcing their appeal to key stakeholders.

ESG disclosures are changing how companies build narratives around commitments.

As ESG becomes a buzzword, it will be more important for companies to demonstrate how their actions are reinforcing their stated values.

The Adecco Group, a global talent solutions company, did that by placing strategic importance on the Forum’s metrics, under the theme of skills for the future. The company wanted to accelerate its work on measuring progress in creating social value, which is at the core of its business.

It discovered that the metrics bring significant value because of their narrative power. The Group is all about “people first” and the metrics have helped the company to quantify its impact on the United Nations Sustainable Development Goals, particularly Goal 4 on lifelong learning and Goal 8 on decent work. As a result, the company told a story of enabling people’s lifelong employability and fulfillment, not simply one of profitability.

ESG disclosures can play a crucial role in articulating how business actions are consistent with the values of a company.

Many other companies have demonstrated that reporting on ESG and the Stakeholder Capitalism Metrics has made a tangible difference to their business operations. Over 150 organizations are now part of the Forum’s coalition of companies that have committed to integrating the metrics into their ESG reporting materials.

According to EY, companies that have reported on the metrics for two years have demonstrated continuous improvement in the maturity and comprehensiveness of their disclosures. The coalition of companies, led by the Forum, engaged with the preparatory working group of the International Sustainability Standards Board (ISSB) — a new entity created under the International Financial Reporting Standards Foundation — and is continuing the dialogue with the ISSB’s technical teams as they press ahead with the standard-setting process.

By reporting on the metrics, companies are also making substantial progress towards a shared global sustainability reporting standard.

As the risk of divergence in ESG regulation from different jurisdictions persists, companies must accelerate the global convergence of sustainability reporting standards. By reporting on ESG, they can signal to regulators their unified corporate voice calling for a single, streamlined set of sustainability disclosures that are material to all businesses.