Why ESG is here to stay 

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Andries Verschelden Co-founder & CEO
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State of ESG 

It’s not just because of our industry that I firmly believe Environmental, Social, and Governance (ESG) is here to stay; across industries, geographies, and company sizes, organizations have been allocating more resources toward improving ESG performance. More than 90 percent of S&P 500 companies now publish ESG reports in some form, as do approximately 70 percent of Russell 1000 companies. To date, it’s been an arms race to develop new (and often competing) ESG rating systems with the aim of bringing consistency and comparability to those trying to seek alpha in those signals. Rather than simplify the complex data landscape of ESG, the resulting frameworks present an even more fractured ecosystem with opaque methodologies. In an earlier article, I shared why the future of ESG is not in ratings – rather in the performance metrics, read it here.

Critics of the current state of ESG, the anti ESG movement, has pundits piling on to label ESG as a buzzword for greenwashing, a woke political agenda, a distraction from achieving true sustainability in society, or not doing enough to move the needle on impact. At the other end of the spectrum are companies arguing that the reporting requirements are too complex or time consuming, not useful for their investors, or they don’t have the necessary information to disclose. While there is validity on both sides, these arguments both point in essence to the shortcomings of the current state of ESG, rather than its promise to transform. Given that ESG and ESG accounting is relatively in its infancy it’s important to look ahead to consider how these issues will be addressed through the evolution of ESG. 

ESG is still evolving

The ESG ecosystem is still very much in its infancy, and we should expect growing pains as the field matures in terms of definitions, methodologies, standards, etc. Over the past decade, there’s been a proliferation of frameworks, standards, and rating systems related to ESG categories. Some are category focused, primarily the environmental sector, while others are geared towards specific industries. The recent formation of the International Sustainability Standards Board (ISSB) promises to bring more clarity to this ecosystem with a global baseline of sustainability disclosures to meet capital market needs, akin to financial accounting standards and with it, more clarity for companies wanting to track their ESG performance against a relevant set of metrics.

Source: ESG Investor

Given the complexity of this landscape, one of the most common concerns that we hear from mid-market companies as reporting regulations and expectations trickle down to this segment, is that setting up ESG program is too difficult (how do I start with ESG?) and that it’s not worth the effort or money to capture the data (what is my current ESG performance?) let alone focus on improvement and external reporting. The good news is that while starting your ESG program from the ground up that requires multiple stakeholder input can seem daunting at first, but when done correctly it can actually promote growth and reduce cost

ESG is becoming increasingly mandatory

Despite concerns and shortcomings, ESG is not going away. Even in just the last two years, we’ve seen strong momentum by government entities to improve ESG guidelines. As these regulations go into effect, it will further solidify ESG as a license to doing business in the future. 

Source: Good.Lab Research

It’s just a matter of time before ESG disclosure moves from the current voluntary disclosure to a mandatory environment through consolidation of regulatory guidelines. Even if your company is exempt from mandatory reporting, there is a good chance some of your biggest suppliers or customers are not, and they will be requesting ESG information from you for their own disclosure purposes. You can learn more about the upcoming SEC reporting requirements and how they may impact your business, plus get tips on preparing for the upcoming SEC climate disclosure requirements here.

ESG will impact how business is conducted in the future, and the best way to prepare is to develop proactive ESG strategy today rather than wait and be blindsided by potential hurdles to requirements. More than just a reporting checklist, companies must approach ESG as a core strategic challenge, not only to help future-proof their organizations but to deliver meaningful impact over the long term. ESG is a journey, and as the ecosystem continues to evolve with framework consolidations and guideline updates, it’s important to pick a platform that can adapt to regulatory changes and support you throughout this journey. Good.Lab’s ESG performance management software is optimized for companies to kickstart their ESG journey, benchmark current progress, and identify gaps that may become future risks. 

What’s next in your ESG journey

Good.Lab is helping companies to simplify ESG program development by breaking it into easy to execute steps. Our ESG taxonomy is compatible with many of the widely adopted standards in the industry to create a comprehensive ESG roadmap that can drive value creation for your company. Our software helps companies to benchmark and track progress for a future that prioritizes ESG concerns alongside shareholder returns. When ESG is done right, it can unlock new opportunities and reduce risk, such as getting head of industry trends or improve employee retention. If you’re interested in exploring how ESG can be a meaningful part of your company’s growth, let’s talk!

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