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Corporate Disclosure Increasingly Requires ESG Reporting

Investors regard ESG performance as a harbinger of financial performance, long-term viability.

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August 17, 2021

Environmental, social and governance (ESG) reporting is now part of many investors’ outlook and is used in the assessment and valuation of companies. According to the 2020 EY Climate Change and Sustainability Services Institutional Investor Survey, 72% of investors surveyed said they conduct a structured, methodical evaluation of nonfinancial disclosures, driving demand for formal ESG reporting.

In response to investor demand, companies and their executive management teams are taking bold action to promote transparent and meaningful ESG reporting. From investors to corporate executives, consumers and regulatory agencies, stakeholders increasingly find that ESG performance impacts a company’s financial performance.

At the end of Q2 2021, shareholders voted for disclosure and action, resulting in 34 majority votes for ESG proposals, eclipsing 2020’s record of 21 votes. This surging demand for ESG reporting and action demonstrates the importance of ESG performance to companies’ long-term viability and value.

In the past, companies often incorporated partial ESG reporting as a brand differentiator or a demonstration of their commitment to a specific social or environmental issue. However, widespread adoption of ESG reporting frameworks — such as the Value Reporting Foundation SASB Standards, the Task Force on Climate-Related Financial Disclosures and the Global Reporting Initiative’s framework — is driving businesses to embrace more comprehensive reporting. This extensive ESG evaluation discloses multiple impact areas, including influence on local communities, support of marginalized groups, carbon footprint, waste management and revenue from more sustainable product offerings, to name a few. The connection between ESG, financial performance and company valuation becomes clearer with each passing year. Consider the following examples:

  • A company’s ability to attract, retain and nurture talented, high-performing employees often hinges on their ability to offer a workplace that supports diversity and inclusion, fair business practices, and equality. This directly impacts the cost and value of labor.
  • By curbing fossil fuel energy use and converting to natural resources, companies can save money while reducing their reliance on limited natural resources that may surge in price over time.
  • Without supply chain visibility, companies may be unknowingly subject to disruptions or significant quality changes in the materials used to make their products, risking damage to brand equity or legal action.

ESG reporting offers companies an opportunity to uncover the greatest risks to their businesses, evaluate their impact on the environment and communities and position themselves to make enduring positive change.

UL offers the expertise, services and solutions needed to help build ESG capabilities. Some of UL’s resources include enterprise software designed to collect, consolidate and analyze sustainability performance, advisory services that help companies map their path forward, and third-party certifications and validations related to environment and sustainability. Explore more insights on ESG reporting and recommendations for embarking on the path to streamlined ESG reporting.