CFOs who improve their organisation’s environmental, social and governance (ESG) reporting for investors will see improved access to capital, stock performance, and customer loyalty, according to Gartner
Analysts at Gartner said that companies with poor ESG disclosures are riskier investment propositions and by improving its ESG performance, companies will tend to have a reduced compliance burden, see higher levels of employee satisfaction and find talent more easily, in addition to being a less likely target for shareholder activism.
ESG investing is a term that is often used alongside sustainable investing, socially responsible investing, mission-related investing, or screening.
Investors consider several different ESG factors, metrics and data and apply them as part of their analysis process to identify material risks and growth opportunities. These factors typically include industry-specific key issues such as climate change, human capital and labour management, corporate governance, gender diversity, privacy and data security, among others.
Stephen Adams, director in the Gartner Finance practice said: ‘Approximately one in 10 investors find the ESG information they are looking for in corporate disclosures. There is an enormous opportunity here for most companies to stand out better to investors simply by providing the information they are looking for.
‘ESG reporting is more widely watched than many CFOs realise. Equity investors and asset managers are the visible tip of the iceberg, but beneath the surface 91% of banks monitor ESG, as well as 24% of global credit ratings agencies, 71% of fixed income investors and over 90% of insurers. CFOs who are not conveying an ESG story to these stakeholders are missing out.’
ESG metrics are currently not mandatory in financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report.
Institutions, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are working to form and define standards to incorporate ESG factors into their standard setting process. Meantime, the IFRS Foundation is also working on the creation of new climate related disclosure standards.
To help their client with their ESG reporting Gartner has created an ESG maturity model based financial brand framework which helps CFOs assess their company’s ESG investment proposition and identify opportunities for improvement in seven critical areas. This will be launched during the virtual Gartner CFO and Finance Executive Conference 25 – 26 May 2021.