Navigating the environmental, social and governance (ESG) landscape is a complex challenge for mid-market companies. Their approach to it will depend on the company size, business type, and stakeholder priorities. There are growing expectations from different stakeholders for companies to integrate ESG into their corporate operations, alongside the regulatory developments that make certain sustainability reports, such as a report on supply chain greenhouse gas (GHG) emissions, mandatory for all companies. This means that companies need a strong ESG position and transparent reporting.
An ideal business model
All stakeholders are looking for an ideal business model that is more ESG-focused while simultaneously involving shareholders, customers and employees. If we don't take the reporting on gas emissions as seriously as the damage they cause, we won't make significant progress in the fight against climate change. Customers/clients also want more sustainable products, while job applicants increasingly ask questions about corporate policy, especially regarding sustainability.
Companies understand that ESG policy can’t be just implemented within the business, but it also must broaden its horizons. The ESG is too demanding of a topic for medium-sized companies to tackle all its issues on its own. Among Grant Thornton's clients, the areas currently gaining traction are sustainability, reporting and social issues.
Reporting as a catalyst for ESG action
Reporting is key to understanding business and monitoring ESG performance across the supply chain. For SMEs, most reporting is still voluntary, but with the upcoming implementation of ISSB global standards, reporting of greenhouse gas emissions will become mandatory in the early 2023.
This presents an opportunity to deliver value by meeting ESG objectives. The established reporting structure allows companies to demonstrate their contribution to the Paris Agreement. ESG reporting has an important role - it indicates the set goals and strategy, and then the implementation progress in business.
Mid-sized companies reports
As part of the International Business Report (IBR) for 2022, Grant Thornton International Ltd. conducted a survey in which about 5,000 leaders among medium-sized companies, in 28 countries, participated. The survey was about current practices in reporting on greenhouse gas emissions. For the survey respondents that are reporting or plan to start reporting, the top ESG benefits are contributing to the goal of net-zero (29%), increasing competitive advantage (29%), making informed decisions about business sustainability (29%), and enhancing readiness to deal with climate-related risks (27%).
Mid-sized companies' preparations for the upcoming ISSB standards include monitoring developments and planning their approach (36%), considering internal reporting processes in preparation for new standards (36%), and actively testing new reporting processes before the new standards become mandatory (34%). Despite all the benefits, early adoption of ESG reporting is limited by a lack of guidance on what data should be collected and how it should be reported. This concern is compounded by the risk that ESG reporting may be further deprioritized in light of the current economic and geopolitical backdrop.
Responses to risks and opportunities must be ready!
Preparing for the ESG reporting requirements means immediate action and significant investment. Companies must invest in resources, training and their employees. They must understand the requirements and start gathering all the information. In order to report in 2023, it is essential to understand the events that happened in 2022, even if the ISSB doesn’t require reporting of comparative data.
Our experts are well positioned to help companies find adequate responses to the changes taking place in the ESG reporting agenda. They can help companies develop efficient and effective ESG plans, while our tax experts can identify opportunities for tax savings driven by corporate ESG actions. Furthermore, audit can provide independent assurance on ESG disclosures. We first connect business activities with ESG issues and assess the issues and impacts – so that then we can prepare the company to anticipate dangers and respond to ESG-related risks and opportunities. For support with ESG reporting and developing your broader ESG strategy, including risk analysis and supply chain mapping, contact our experts.
Data source: Grant Thornton International Ltd.