Until recently, environment, social and governance (ESG) reports were largely seen as feel-good pieces to put a company’s best foot forward. Whether intended to show investors their money was spent responsibly or to cultivate a more favorable image, ESG reports didn’t previously have a ton riding on them.
But today, ESG reports are under increased scrutiny from government regulators, investors, potential recruits, acquiring companies, the media and the public. Each one is looking for a clear window into how your financial services firm is addressing some of the biggest issues facing society, business and the world.
In short, your ESG report must meet a much higher standard and satisfy a broader audience than ever before. And your report needs to be accurate, authentic and understandable to anyone who reads it.
Short of that, your financial services firm faces considerable risk. A lackluster, incomplete or inaccurate ESG report could invite regulatory action, reputational damage and recruiting challenges.
This article covers the importance of having a proper and responsive ESG report, the benefits of sharing and using the information you’ve gathered, and how to develop one that delivers on all fronts.
ESG Reports Evolved to Put Financial Services Firms’ Activities in a Broader Context
Let’s take a step back to clarify how ESG reports came to be what they are today—and where they are heading. As a whole, environmental, social and governance is a framework for assessing an organization’s behavior.
For financial services firms, an ESG report details your company’s policies and actions in three areas:
Environment. The climate crisis has prompted investors to be more aware of how their investments impact the global ecosystem. They will examine your firm’s carbon footprint, emissions, energy use, water management practices, use of sustainable resources, and recycling and waste management programs.
Social. Investors—along with politicians, the media and the public—are also increasingly concerned with how companies are addressing diversity and inclusion. This category also covers how your firm handles social justice issues, worker conditions, human rights, consumer protection and even animal welfare.
Governance. In an ESG report, governance is about your board of directors and its demographics but also so much more. Investors are scrutinizing your executive compensation and bonus packages, management structure, employee relations and gender pay equity.
After beginning as a United Nations’ corporate social responsibility initiative less than two decades ago, ESG has grown into a worldwide movement covering all companies with a combined $30 trillion in assets under management.
Your ESG Report Is an Opportunity to Set Your Firm Apart
Because regulatory agencies are driving the most recent emphasis on ESG reporting from financial services companies, some firms regard it strictly as an obligation.
But these reports are a rare opportunity to differentiate your firm from others.
How to Differentiate Your Firm With ESG Reporting
Here are three ways your ESG report can help your firm stand out:
- Recruiting. As you know, it’s a tough market for recruiting new talent. Job candidates have unprecedented leverage and many are looking to do meaningful work at a company they can be proud of. Your ESG report is a place to showcase the special work you do and the responsible and thoughtful approach you take.
- Mergers & acquisitions. If another company is considering acquiring or merging with yours, they will want a complete picture of your operation. And that’s about much more than your financial health. It’s about having an understanding of how you conduct your business and its effect on the broader world. ESG reports help give a potential acquirer a panoramic view of your firm.
- Employee engagement and retention. Information gathered through your ESG reporting can also be used to strengthen your workplace culture. ESG data can steer mentoring and professional development programs and improve how employees work together and serve their customers.
Done properly, your ESG report should function as a highlight reel for your financial services firm. Designed with informative charts and graphs along with attractive photography, it should tell a compelling story that helps everyone understand what you’re all about.
Prepare Now as Regulators Press Financial Services Firms for More Complete ESG Reports
While the SEC is still finalizing its rules for ESG reporting, your firm should be gearing up now.
Here are some preliminary steps you can take:
Pick Your Team
Pulling together a proper ESG report requires collaboration across multiple departments on a variety of topics. It can’t just fall to your communications/PR/marketing group. Your finance and accounting team makes sure the information is accurate and reliable. Your sustainability team adds its policies, data and context. Your HR department shares data on pay equity, diversity and mentorship programs. And so forth. Bring everyone to the table.
Gather Your Data
Verifiability is at the heart of ESG regulatory scrutiny. They want to know that what you’re saying about your firm is factual. You need to have all the data regulators expect, and be prepared to show them how they can double-check. You also want to establish baseline data so that you can measure your progress moving forward.
Use What You Learn
Simply creating an ESG report to appease a regulatory body ignores the value of the information you have assembled. The end product can and should be used to promote deep and lasting change in your organization. Incorporate it into your business strategy. Leverage it to create a competitive advantage.
Make Your Firm’s ESG Report a Top Priority
The pressure to provide clear, comprehensive and factual ESG reports is no longer just a matter of attracting more investors or gaining favor with the public or the press. Government regulators are moving closer to making this a mandatory part of your annual reporting requirements.
The time to begin preparing is now.
Decker Design has worked with a number of financial institutions’ complex data to make it clear and understandable. Developing and designing strong ESG reports is an extension of that knowledge set.
With so much at stake, you can’t afford a misstep with your ESG report. If you would like to learn more about Decker Design’s ESG guidance, we’d love to hear from you.