Why Environmental, Social, and Governance (ESG) Reporting is Important for 21st Century Businesses
There is a lot that falls under Environmental, Social, and Governance (ESG) including customer relations, climate change, biodiversity, data security, board management practices, and so much more. Because ESG has become a critical part of the corporate language, we are seeing an unprecedented level of growth in ESG investments and prioritization of sustainability. Business leaders have no choice but to respond with proper ESG reporting if they want to satisfy their investors, shareholders, boards, and customers. With this in mind, let us look at the importance of ESG reporting in today’s business environment.
Attracting Investors and Financing
Increasingly, lenders, and investors are using ESG reports to gauge how well businesses are prepared for the future. Such reports have become an important tool for measuring a business’s risk exposure as well as its likely financial performance in the future.
To see how essential ESG is in driving investments, you can look at the Principles for Responsible Investment (PRI) reports. The PRI is a group of investors who help investors factor ESG into their investment processes and decisions. The group also develops principles that investors must follow.
As investors and lenders become more interested in ESG, the number of PRI signatories increases. This shows us that investors are increasingly putting their money into companies that have good ESG, and they can only learn that through ESG reporting.
Building a Customer Base
Consumers are becoming very sensitive to the ecological and sustainability actions of companies. Customers are increasingly choosing companies that have great ESG priorities and reputations. Buyers are abandoning companies that do not align with their values and views, including those on sustainability and others covered under ESG and aligning with companies that do. They are also more willing and likely to buy from these companies.
While telling ESG stories and reporting on what a company is doing can help attract new customers and build loyal and strong customer bases, businesses, and companies have to be careful to remain transparent and authentic.
Any company that misleads the public about its eco-friendly practices or products – greenwashing – will suffer reputational damage that it might not be able to recover from. This is highly likely seeing the role social media and access to unprecedented amounts of information play in informing consumer behavior.
It Helps Cultivate Transparency
Many companies see ESG reporting as a burden and seeing it as an opportunity for transparency requires a mindset shift.
When this mind shift happens, companies will start to see that transparency can be an important tool for creating collusion and unlocking capital that can help with coming up with these solutions. These solutions are to the major challenges businesses face today including equality, data security, climate change, sustainability, and much more.
ESG Reporting Meets Stakeholder Expectations
It is not only investors, lenders, customers, and the public who demand transparency; stakeholders do too. Stakeholders want to know what businesses are doing to attract customers who say they prefer companies that have their ESG priorities in order. ESG reporting can give them the transparency they seek.
ESG reporting has become an essential part of doing business in the current business climate. It is driving financing, investments, transparency, consumer interest, and attraction to the business.