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An analysis of 250 sustainability reports from S&P 500 companies published in 2023, The DNA of 2023 U.S. Sustainability Reports, finds that the focus on sustainability reporting continues apace. The report, posted in the Harvard Law School Forum on Corporate Governance by Martha Carter, Matt Filosa, Diana Lee of Teneo, notes that “Since we published our last study on US sustainability reports 12 months ago, political attacks on ESG have escalated heading into the 2024 US presidential campaign. As a result, companies are now facing critical questions on how to communicate their ESG strategies and initiatives, especially within annual sustainability reports that are now the norm for most companies.”
Similarly, a study published recently in the Financial Times by analysts Maggie O’Neal, Charlotte Edwards, Dipika Haresh Mirchandani and Magesh Kumar Chandrasekaran found that — “in terms of raw headcount — the rate of (ESG fund) closures are indeed elevated: 72 ESG equity and fixed income funds have closed so far this year, more than the annual total for the previous three years. But in terms of the assets under management of the closing funds, things are merely meh...that overall flows into ESG had remained positive despite the high number of closures — although the heady levels of 2021 now look pretty far away.”
The DNA study of 2023 sustainability reports was conducted Martha Carter is Vice Chair & Head of Governance Advisory, Matt Filosa is Senior Managing Director, and Diana Lee is Senior Vice President at Teneo, a global CEO advisory firm. The article is based on a Teneo memorandum by Carter, Filosa, Lee, and Sean Quinn, and Sydney Carlock.
Their key findings include:
1. ESG is alive and well. “By any metric that we tracked, companies remained resolute on their ESG priorities despite the political rhetoric. Almost 80% of companies disclosed that all their ESG goals were on track. CEOs still signed or co-signed 95% of report cover letters...Even the use of the ESG acronym increased by about 20% from last year – with more companies including ESG in the report title (eight) than removing it (five).”
2. Don’t forget about the “G”. Company disclosures on how both management and the board oversee ESG strategies have become much more detailed, the study finds, with governance largely outside the political fray.
3. Companies are moving toward double-materiality. “While single materiality assessments continue to be most common, almost 10% of companies conducted a double materiality assessment. More companies are likely to do the same over the next few years given that new European rules will require double materiality assessments of many US companies with significant operations in Europe.” Double-materiality, the essence of the new European Union Corporate Sustainability Reporting Directive, refers to the opportunities and risks organizations create for stakeholders and the environment and in turn the opportunities and risks that stakeholders and the environment present for businesses.
4. More transparency. “Companies communicated in more detail about their ESG goals, including whether an ESG goal is off-track, or its timeline/scope has been reset. This increased transparency was likely an attempt to help prevent greenwashing claims from stakeholders (including regulators).”
5. ESG is a global movement. The European Union has finalized its mandatory ESG disclosure regime that will cover thousands of US companies, with more ESG disclosure regulation being drafted in Europe and around the world, as well as by the US Securities and Exchange Commission.
6. A public relations opportunity. The study finds that “a majority of companies issued a press release with their sustainability report publication – though less common than in prior years perhaps due to the ESG backlash. In addition, a vast majority of companies published ESG microsites within their corporate website highlighting their primary ESG initiatives.”
7. Audited reports advance. “Companies continued to seek greater internal and external assurance on certain environmental and social data, largely on a limited assurance standard (as opposed to a reasonable assurance standard). External assurance providers included many firms outside of the Big Four auditors.”
8. Who’s in charge. “Companies disclosed a variety of positions who were primarily responsible for ESG, including Chief Sustainability Officers, Chief Executive Officers, General Counsels and Chief Communications Officers. In some instances, companies noted that multiple executives shared responsibility for ESG.”
9. Most popular disclosure frameworks. SASB (Sustainability Accounting Standards Board) was used by over 90% of the companies in their research; TCFD, a carbon metric, (77%); GRI, a global reporting standard, (69%) and UN SDGs--sustainable development goals--(68%).
10. Politicians and stakeholders put management in the middle. The authors believe that “ESG is likely in for a bumpy ride over the next 12 months. Republicans are likely to continue to use anti-ESG rhetoric as part of their stump during the US presidential election. At the same time, other stakeholders such as investors, employees and global regulators are likely to continue pressing companies to address ESG issues as part of their overarching business strategies.”
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