Don’t Ask Why
One theme will dominate the ESG conversation this year: corporate disclosures. Disclosing information about your company’s ESG performance is now a necessity, not a luxury. You are in a competition for capital, based on non-financial metrics.
The plethora of disclosure standards may have, to date, precluded a benchmark and hindered widespread ESG activity and measurement. But that’s about to change.
Consolidation between the ‘alphabet soup’ of standards is already taking place. The EU regulation barrelling down the autobahn will only increase pressure on companies to report non-financial metrics.
In January, two events underscored the trend towards widespread ESG compliance and disclosure.
First, we had BlackRock chief Larry Fink’s annual letter to CEOs. As expected, the letter—an essential calendar event for investors, companies and anyone paying attention to sustainability—set a net-zero target for investee companies. Whereas previous letters have been relatively light on the details, this year’s missive moved from idealism to implementation. Fink called on companies to back up their net-zero targets with demonstrable, disclosable, plans. These, he urged, would need to be built into business strategies and regularly reviewed by independent company boards.
Cynics and climate activists might argue BlackRock’s letter is an exercise in marketing, with the behemoth investor unlikely to divest from companies that don’t disclose. But that’s not the point.
With $9trn in assets under management, BlackRock has serious clout. When Fink speaks, companies—and other investors—listen and act.
Which brings us to Davos.
In the last couple of years, the World Economic Forum (WEF) in Davos has become a locus for ESG action. This January, more than 60 global businesses—including Mastercard, Nestlé and Unilever—used the event as an opportunity to commit to corporate transparency. The companies committed to publish information on 21 environmental, social, and governance metrics, from greenhouse gas emissions to diversity to taxes paid. The list of 21 core ‘stakeholder capitalism metrics’ is the result of a six-month consultation process led by the WEF and aligns with UN Sustainable Development Goals. Their adoption speaks to the growing trend towards truly comprehensive transparency, beyond climate initiatives.
The conversation has moved beyond why companies should disclose more. The big question now is how.
Strategically sharing and communicating your ESG credentials can be a major differentiator for investors and clients. It already has the power to make or break your business.
Time to step forward purposefully, carefully, when navigating this new environment. Let Williams Nicolson be your guide.