Get Ready for More Transparent Sustainability Reporting
Mandatory disclosures will give investors and other stakeholders a clearer picture of the future of your business. What story does yours tell?
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Traci Daberko
Rigorous sustainability-related financial disclosure is coming. The era of inconsistent, voluntary disclosure is giving way to mandatory reporting — but don’t treat this regulatory revolution as simply an exercise in compliance. It is instead essential work to gain greater visibility into your business’s exposure to risk and long-term prospects for success — for the benefit of both investors and management.
Action has been brisk this year on the regulatory front. The U.S. Securities and Exchange Commission (SEC) plans to issue its climate disclosure rules by the end of 2023. In June, the International Sustainability Standards Board (ISSB) issued its first global standards; the European Union issued its European Sustainability Reporting Standards (ESRS) in August. The ESRS reporting requirements will be mandatory for large European companies starting in 2024 and in due course for international companies with European operations. Corporate reporting hasn’t changed this much since the SEC was created in the wake of the 1929 stock market crash.
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How should senior executives and boards respond to, and take advantage of, these changes? In this article, I will explain why focusing on what investors want from sustainability reporting is a critical lens for understanding how to act. Through that lens, I examine how best to navigate the evolving landscape of mandatory reporting.
What Investors Need to Know
Investors seeking gains via either growth or lasting value know that the energy sources that built the global economy are not those that will sustain it. Economic value will therefore be created by serving new and existing markets in different ways. Investors are looking to these different market conditions that lie ahead, where sustainability builds resilience and increases the capacity for growth.
Investors seeking gains via either growth or lasting value know that the energy sources that built the global economy are not those that will sustain it.
Smart investors also know that if global warming is not slowed, and if natural resources continue to be depleted at the current rate, economic activity will suffer. Insurers are experts in anticipating and managing risk, and they are ahead of the game, rethinking where and how they do business. A consequence is that the costs of catastrophes related to climate change will increasingly be borne more directly by businesses and private citizens.