ESG requirements and reporting
What will banks and investors request from companies?
Banks and investors will periodically increase their ESG requests. We believe that relevant ESG requirements will evolve in 3 phases. We are now in Phase 1.
Current Phase (Phase 1): Focus in environment
- Request annual data mainly related to environmental performance.
- Ensure that the investment or activity to be financed complies with all applicable regulations and financing standards (i.e. ESMS)
Phase 2: Disclose complete ESG performance
- Incorporate in relevant requests Social and Governance related metrics.
- Disclose ESG performance through annual reports.
- Develop measures consistent with the industry requirements and comparable over the years.
- Perform 3rd party assurance over the respective KPIs.
Phase 3: Improve ESG performance
- Establish an ESG strategy, depicting short and long term commitments.
- Define an action plan in order to improve ESG performance.
- Become taxonomy eligible.
- Achieve higher ESG ratings.
- Link ESG performance with financing terms.
Why monitor and report ESG performance?
- Meet the requirements of investors and financial institutions.
Investors, funds and financial institutions are increasingly taking into consideration the ESG performance of companies. As a result, companies that demonstrate transparency, and good performance in ESG related matters achieve higher ESG ratings and enjoy better access to funding as well as more favorable financing terms. - Access to capital markets.
Investors assessing organizations' sustainability performance in the context of good corporate governance and risk management. The transparency of how (well) an organization is addressing sustainability builds trust with investors. Sustainability performance improves brand and reputation. - Improve performance.
Companies are increasingly trying to improve performance related to issues such as environmental impact, people wellbeing, health and safety and business ethics. It is therefore required to continuously monitor KPIs related to ESG and compare against targets and industry peers.
- Gain a competitive advantage.
Companies that understand the implications of sustainability to their business models can use this information to both enhance and develop new products and services. For example (a) first mover advantage and (b) reputational position in new and/or growing markets. - Demonstrate ethical and socially responsible business practices.
At its core, ESG and sustainability promote business ethics and social prosperity, thus adopting and promoting sustainable practices enhances both of these causes and allows companies to obtain a social license to operate.
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