Social
Business culture is shifting and corporations have been challenged more than ever to balance profitability and accountability while contributing to society more broadly (McKinsey, 2020). Against this backdrop, regulators around the world are reviewing Environmental, Social, and Governance (ESG) reporting requirements, with many shifting to mandatory disclosure.
Environmental, Social, and Governance (ESG) reporting involves companies outlining their sustainability, social impacts, and internal governance policies to stakeholders. These pillars are comprised of:
· Environmental: this relates to emissions, waste, pollution, use of resources, and other impacts on the planet
· Social: includes social factors, diversity, community, health and safety, Human rights, and Privacy and data security
· Governance: relates to best practice systems and processes, anti-corruption, and board diversity.
Laws relating to ESG reporting are emerging around the world. Some of these include:
· Companies listed on the Singapore Exchange (SGX)have been required to complete annual sustainability reporting on a ‘comply or explain basis since 2016
· In 2020, the Hong Kong Stock Exchange (HKEX) introduced new ESG reporting requirements for listed companies, with both mandatory disclosure requirements and ‘comply or explain’ provisions
· The Securities and Exchange Board of India announced in2021 that the top 1000 listed companies would be required to report on their parameters
· October 2021 saw the New Zealand parliament pass the Financial Sector Amendment Act 2021 (FSAA). Requiring approximately 200 entities to provide reporting with a high level of public accountability to make disclosures in relation to climate-related risks and opportunities in line with Task Force on Climate-related Financial Disclosures(TCFD) recommendations
· The United Kingdom implemented the companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 in April 2022. The Regulations amend the Companies Act 2006 and implement the recommendations of the TCFD.
The US Securities and Exchange Commission (SEC) has proposed a new rule, which, if adopted would require public companies to provide detailed reporting of their climate-related risks, emissions, and net-zero transition plans.
In Australia, mandatory reporting only exists for certain matters under the Workplace Gender Equality Act 2012 (Cth) and Modern Slavery Act2018 (Cth). Further, the Corporations Act 2001 (Cth) in s1013D(1)(l)requires issuers of financial products to disclose “the extent to which labour standards or environmental, social or ethical considerations are taken into account in the selection retention or realisation of the investment” in their Product Disclosure Statements.
While their viewpoints and areas of influence vary, stakeholders such as shareholders, investors, employees, customers, communities as well as regulators, and activists are scrutinising ESG initiatives more than ever.
Companies looking to commence or improve their ESG reporting should consider the reporting framework and data collection phases of the process, in addition to the impact ESG and sustainability efforts will have on their businesses now and into the future.
Insurers have high ESG ambitions, and they are expected to play a critical role in the transition to a more eco-friendly economy. The recent Australian and New Zealand Institute of Insurance and Finance (ANZIIF) 2022 Australian Insurance Industry Awards, saw the introduction of categories to acknowledge ESG-related achievements. For example, the Excellence in Environmental, Social, and Governance Change (ESG) award recognised outstanding ESG business strategies and practices. Not only are insurers driving change through operations and awards, but they are also looking to incentivise businesses by considering ESG in their underwriting practices.
Specialist insurer, Beazley launched the first ESG syndicate in January this year, recognising companies for their strong ESG profiles. This is the first time that clients have been offered the choice of ESG capacity from Lloyd’s with the new syndicate providing capacity exclusively for clients with healthy ESG ratings. Beazley’s position is that companies that perform well on ESG metrics are likely to have strong risk management systems and claims performance. The consortium is currently limited to clients who place their insurance programs through Beazley’s London Market. Beazley intends to invite other Lloyd’s syndicates, creating greater capacity over time.
With organisations facing more pressure to implement robust ESG policies and fund managers looking beyond financial metrics alone, underwriters in the Directors and Officers' insurance space are starting to review ESG reporting in annual reports to ensure greenwashing is not occurring and organisations are executing their commitments.
ESG reporting involves the collection of information from several sources and people both internally and externally. This process often involves traditional data collection methods such as spreadsheets, emails, and ledgers. However, an ESG software solution can simplify the reporting process, either for the first time or to improve existing processes.
Honan has partnered with BoardRoom, which offers clients an effective sustainability reporting software tool: ESG Access. ESG Access provides a central depository to streamline data collection and analysis. The tool educates and guides users, explaining the information required and why it is relevant to the process. Importantly, it enables administrators and managers to track progress and monitor indicators and trends for improved decision-making.
ESG software solutions such as BoardRoom’s ESG Access allow businesses to conduct their own materiality assessments to understand their recommended reporting framework, reducing the reliance on potentially expensive consultants. At the end of the process, the software produces a branded report displaying the data with accompanying statements from Management, which can be distributed to stakeholders.
Client and Operations Lead – Professional and Executive Risks
Tom Bloomfield - BoardRoom
tom.bloomfield@boardroomlimited.com.au
Tina Thomas - BoardRoom
tina.thomas@boardroomlimited.com.
