As companies disclose more ESG information, external insurance can help
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Today, more and more companies are implementing ESG initiatives and reporting on their efforts to meet the growing demands of investors and other stakeholders who increasingly use ESG data to inform their investment decisions. . Now more than ever, companies need to demonstrate that their goal is not just words, but actions that benefit all of their stakeholders.
Most business leaders understand what’s at stake. In PwC’s recent Consumer Intelligence series, 92% of companies surveyed agree that companies with commitments to ESG policies will outlive their competitors without. However, 37% also cited the lack of reporting standards and regulations as one of the main obstacles to ESG progress. As investors and regulators demand more transparency on ESG matters, knowing what and how companies disclose ESG data is critical to meeting market needs and building trust with stakeholders.
Insurance for ESG disclosures
The SEC recently issued a request for input on climate change disclosures, the first step in the potential development of standardized reporting processes for climate change, among other future ESG issues. This would provide clear guidance for companies by taking the guesswork out of what and where to disclose climate and other ESG information.
New requirements should be insured by an independent third party, similar to financial information. Independent assurance would give investors additional confidence in the quality of ESG information and strengthen their credibility. After all, investors and other stakeholders deserve the same confidence in climate information that they now expect from financial information.
In addition, a company’s financial auditor already understands the operations, systems, processes and reports of the company, as well as the roles and responsibilities of employees. Therefore, the existing knowledge of the external auditors could inform the scope and approach of climate change information assurance and provide context for the findings.
Like financial information, ESG data can be important to a business and its long-term value proposition. Requiring reasonable assurance from external auditors adds another level of quality to ensure consistent, high-quality data that investors can use to inform decisions and that business leaders can leverage to shape their business strategy. Because CFOs often “own” ESG reports, they offer CFOs the ability to combine financial and non-financial information to better tell their story.
Why ESG reporting is important
As more companies make ESG-focused commitments, especially net zero commitments, these strategies require milestones, and a strong focus on ESG reporting can help companies understand where they stand, monitor progress against goals and communicate with stakeholders. This level of transparency and credibility will undoubtedly help build trust with stakeholders by demonstrating that the company is a good business steward.
In addition, ESG is essential to seize opportunities and stay ahead of vulnerability. After all, you can’t manage what you can’t measure, and consistent ESG reporting helps companies understand what’s working and identify opportunities for improvement. Many ESG areas, if left unaddressed, can expose a company to risks in all areas of the environment, social and governance. Access to accurate and up-to-date ESG data enables business leaders to make more informed decisions that impact business strategy and other initiatives.
And adopting ESG initiatives shouldn’t be done simply to tick a regulatory box, but to create lasting benefit and value for the organization. While ESG initiatives are useful to a company’s stakeholders, its community, and our society at large, leaders understand that it is also good for the bottom line.
Wes Bricker is US Vice President of PwC and Co-Leader of Trusted Solutions.