Last year, ESG had a watershed moment. That’s according to Reuters in an analysis showing how environmental, social, and governance (ESG) issues gained importance in 2021.
Now a year later, there’s no sign these concerns are losing momentum. In fact, it’s expected environmental, social, and governance issues will continue to grow in importance in 2022.
With fresh eyes locked on what the future holds, it’s the perfect time to consider what’s in the road ahead. Here are three emerging trends in reporting you can expect in 2022.
1. Increased Transparency
Investors want to know your full ESG value, so it’s crucial you demonstrate your commitment to all three factors this year.
Make sure you share all relevant data points on your investor relations website. This is the first place investors will visit when comparing your policies against their own values.
In fact, your IR website can be your strongest asset when making your commitment to the environment known.
The best ESG websites marry qualitative data with engaging narratives, sharing a brand’s evolution as an eco and socially conscious entity.
Storytelling may even rival the black and white of your reporting in 2022, so work with ESG consultants to weave a narrative that underscores your initiatives and value propositions.
2. Tightened Regulations
As the quality of data improves in 2022, so will the reporting regulations. Reporting has largely been a voluntary measure in the past, but it will become increasingly standardized as ESG solution grows in importance.
Soon, publicly funded companies, IPOs, and SPACs will have to comply with the SEC and third parties.
The SEC
It’s not a matter of if The U.S. Securities and Exchange Commission (SEC) will develop greater reporting regulations but when.
The SEC has hinted at these new regulations all last year. And, up until recently, most believed the SEC would publish them at the end of 2021.
With delays pushing these changes to 2022, you can expect updates to existing reporting frameworks soon. These updates will help hammer out definitions and standardize reporting metrics.
Third Parties
In 2020, five influential standard-setting institutions of international significance announced a collaboration.
- Carbon Disclosure Project (CDP)
- Climate Disclosure Standards Board (CDSB)
- Global Reporting Initiative (GRI)
- International Integrated Reporting Council (IIRC)
- Sustainability Accounting Standards Board (SASB)
Together, these five institutions released a paper outlining their shared vision for financial accounting and sustainability disclosures. The paper aims to streamline sustainability reporting, removing any complexities that make it difficult for organizations to report transparently.
Today, these institutions continue to refine a common reporting language. It’s a good idea to follow their lead when handling your ESG.
3. ESG Ratings to Gain Importance
Another trend to blossom over the course of 2022 will be how ratings will affect performance.
In addition to researching a company’s ESG story and reports, investors will rely more heavily on ratings to gain even greater insights on investment opportunities.
Rating systems give global companies a grade reflecting how they perform in key ESG issues, which can help investors evaluate the sincerity of a company’s claims.
For example, the popular rating system MSCI evaluates companies according to 35 issues, including material sourcing, carbon emissions, labor standards, and accounting practices. This marking system can help eco-minded investors spot and avoid green washing, a process where a company embellishes its environmental claims to seem more sustainable.
The Takeaway:
The importance of ESG is here to stay. As regulatory frameworks and rating systems codify your reporting, it’s vital you focus on delivering transparent data. Follow these trends to remain relevant in the year to come.
