ESG Reporting: A Strategic Imperative for sustainable investment for your business

ESG reporting has become one of the critical tools that companies have today, which reflects their commitment to sustainability, ethical practices, and long-term value creation. As  the businesses are also becoming more demanding due to the regulatory requirements and expectations from investors, ESG reporting becomes essential for the businesses to stay ahead and be sustainable.

ESG reporting is…

ESG reporting refers to the disclosing of a firm’s environmental, social, and governance practices, enabling the stakeholders to be able to see how sustainable that company is performing. ESG metrics include mainly:

• Environmental: Carbon emissions, energy efficiency, waste management, and water usage.
• Social: Employee welfare, diversity and inclusion, community engagement, and supply chain ethics.
• Governance: Board diversity, ethical business practices, anti-corruption measures, and shareholder rights.

Key ESG regulations in across the globe

Since the ESG regulations cover areas of environmental, social and governance impacts, strict laws are maintained to guide the businesses to improve on sustainability, social responsibility and ethical governance. The Companies Act 2013 and the board of SEBI has provided some key regulations like,

Business responsibility and sustainability reporting (BRSR) – This framework is to replace the already existing BRR act in 2021 which aligns with the UNSDG.

SEBI’s BRSR guidelines – This will promote ESG with mandatory disclosure of ESG metrics for the companies.

Overall ESG framework – This is a framework to promote ESG.

Green bonds – For sustainable projects, the green bonds will be used for the promotion of ESG.

The growing importance of ESG reporting in Middle East regions

There is an increasing trend of responsible business operations as noticed due to regulatory inputs, investor preferences, and enlightened consumers. Companies Act 2013 mandates corporate social responsibility (CSR) reporting, which tallies with ESG requirements. SEBI has underlined the decision-making on reportage by the top 1,000 listed companies by mandating disclosure of their ESG performance using BRSR. This framework meets international standards like the Global Reporting Initiative and Task Force on Climate-related Financial Disclosures.

Increasingly, investors are focusing on companies performing well on ESG parameters. This is evident from the fact that sustainable funds attracted are more than $1.3 billion inflows in 2022, as per Morningstar report of 2022.

Implementation of ESG reporting by thecompanies

Assessment and Strategy Development:

An ESG materiality assessment will allow companies to align key sustainability factors with the goals of ESG and business strategy and stakeholder expectations.

Data Collection and Analysis:

Companies will be able to collect relevant data on carbon emissions, waste management, labor policies, governance practices, etc., and can also use ESG software tools to track and report efficiently.

Adopt an ESG Reporting Framework:

An appropriate framework like BRSR, GRI, or SASB, according to business requirements, needs to be adopted in order to align with local and global reporting standards.

Independent Assurance and Continuous Improvement:

Companies may seek third-party verification to improve the credibility of their steps on ESG reporting. In the long run, monitoring, evaluating, and improving ESG performance will be inevitable.

Requirements of ESG compliance

The ESG compliance requirements will address the ESG concerns faced by any organisation. There are also two other new regulations being created by Germany and European Union (EU) which has the ability to reshape the existing landscape. It will focus on the areas of investment and financial institutions which is further breakdown into categories like;

• Organizations to disclose ESG performance and practices
• Investors to make ESG as part of their investment planning
• Specific laws to note down on the parts of ESG
• Organizations to audit and manage their business practices and supply chains

Future of global ESG reporting

With the government’s thrust for sustainable development and increasing global alignment, ESG reporting is likely to gain further significance across the globe. Key trends shaping the future include:

• Mandatory ESG disclosures beyond the top 1000 companies.
• Integration of artificial intelligence (AI) and big data in ESG analytics.
• Increased demand for ESG-focused talent and leadership.

From not being a “nice-to-have” in the corporate life of companies, ESG reporting has truly become a “must-have” for the successful running of corporate business. By aligning commercial success with sustainable and social needs, ESG reporting paves the way forward for a safe and inclusive tomorrow. Afras, being among the leading names in quality and sustainability consulting for businesses, shall be able to help the business, meet their ESG reporting needs while ensuring compliance on ESG improvement and building more resilient organizations.

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