The U.S. Securities and Exchange Commission (SEC) is working on new rules that will govern what companies disclose about the impact and risks related to climate change and how global warming could affect a company’s future financial performance.
Investors are becoming increasingly sensitive to a company’s “green line” – the impact a company’s supply chain activities, operations, products and services have on the environment, particularly CO2 emissions.
More than 90% of companies already produce and publish sustainability reports, according to PwC. But the lack of agreed standards make it difficult for investors, consumers and potential employees to make direct comparisons.
In addition, voluntary disclosures are often delayed and are not fully integrated with financial metrics, making it hard to correlate the impact of climate-related initiatives on corporate operations and other variables such as capital expenditures.
U.S. regulators in particular are expected to address these issues by introducing mandatory reporting requirements, perhaps as soon as this year.
“We need more standardized environmental, social, and governance (ESG) reporting frameworks as businesses are increasingly required to disclose their impacts,” said Daniel Schmid, SAP’s Chief Sustainability Officer. “It’s clear that strong performance in these non-financial areas is a competitive advantage and supports long-term business value creation.”
For years, companies have reported their ESG or non-financial performance. This kind of reporting is increasingly mandatory for listed companies, while private and smaller companies are increasingly reporting voluntarily.
The challenge for all of them, however, is the broad range of reporting frameworks and standards. More than 100 ESG reporting guidelines are in use — often conflicting and redundant — making it virtually impossible for executives, investors and other stakeholders to determine credible progress or compare impacts across different companies and industries. Ninety percent of corporations said that a set of universal ESG metrics and disclosures would be useful for financial markets and the economy.
Consolidation around a universal, comparable set of reporting standards is urgently needed.
Joellen Perry, Head of Global Public Relations, SAP
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