In the span of a few years, the environmental, social and governance (ESG) landscape has changed dramatically, from both the investor and issuer perspective. While not long ago, many companies considered it a ‘nice to have’ at best, today’s investors are increasingly focused on the ESG risks and opportunities of the companies in which they invest, and addressing ESG – regardless of a company’s geography, industry or size – is no longer optional.

A clear and monumental shift in the relevance of ESG issues in influencing investor voting decisions across markets is apparent, and it is now more important than ever to be aware of investor ESG concerns and priorities.

The past two years have seen a number of investors incorporate ESG reporting expectations into their proxy voting guidelines. While investors continue to view transparency in company practices as necessary, updated voting guidelines indicate that transparency alone is not sufficient to drive the progress that investors expect.

Companies should not only set goals, but also demonstrate concrete plans to meet those goals. Accordingly, companies need to act promptly and decisively to progress the management and disclosure of key ESG risks and opportunities.

There has been a rapid proliferation of ESG reporting standards and frameworks, data providers, aggregators and ESG ratings, as well as notable acquisitions within this space. In addition, major institutional investors continue to build out ESG-dedicated positions and their own proprietary ESG platforms. This surge of activity and the continually changing ESG environment demonstrate how complex and challenging it can be for companies to navigate.

As the ESG ecosystem evolves, so do investor expectations for current, effective ESG data regarding the companies they invest in, or are considering investing in. Accordingly, companies must adapt their ESG reporting to align with investor-favoured frameworks and standards to meet investors’ expectations.

Furthermore, likely exponential growth of regulatory requirements in the coming months and years globally can expect to come to the fore in SA, which is set to further increase investors’ demand for ESG information.

For companies to focus their time and resources effectively, it’s crucial to understand their top investors’ data-usage practices; approach to ESG integration; and what these investors expect from issuers in terms of sustainability practices and disclosures.

Research by Georgeson, which is owned globally by Computershare, reveals that the top five global ESG reporting frameworks and standards favoured by investors are the Task Force on Climate-Related Financial Disclosures (TCFD); the Sustainability Accounting Standards Board; the International Integrated Reporting Council; the Global Reporting Initiative and the CDP, formerly known as the Carbon Disclosure Project.

The Financial Stability Board TCFD Framework – as its name suggests – was developed to facilitate consistent climate-related financial risk disclosures to provide information to investors, lenders, insurers and other financial market participants. The TCFD’s recommendations are structured to elicit information regarding a company’s approach to climate-related risks and opportunities across four core pillars, namely governance; strategy; risk management; and metrics and targets.

While the overall TCFD framework is industry-agnostic, supplemental guidance is provided for certain high-risk sectors, including financial services, energy, transportation, materials and buildings, and agriculture, food and forest products.

According to the TCFD’s 2021 summary report, there’s been a 70% rise in the number of organisations (more than 2 600 globally) reporting in line with TCFD recommendations. Numerous industry-led initiatives have also driven support for and implementation of the TCFD, among them Climate Action 100+ (a committee of global investors focused on assessing the performance of the world’s largest greenhouse gas emitters).

Due to this heightened focus on global climate change, investors and regulators are also increasingly mandating inclusion of TCFD’s climate reporting disclosures. The number of ‘Say on Climate’ board-proposed resolutions at the AGMs of companies in seven major European markets tripled between the 2021 and 2022 AGM seasons, according to Georgeson’s 2022 AGM Season Review. Companies can expect to find greater collaboration by their investors in their engagements on key issues such as climate.

On a global level, the G7 – which consists of Canada, France, Germany, Italy, Japan, the UK and US – has called to make climate-reporting mandatory. With regard to social issues, investors had focused on employee health and safety, diversity, equity and inclusion, as well as human rights issues, child labour considerations and gender equality, both in the boardroom and across the broader workforce.

A company’s investor base and geographic location of domicile further narrows which frameworks are most relevant, underscoring the need to understand key investors’ expectations in the early stages of sustainability-report development.

As investors refine their expectations, they are increasingly evolving the ways in which they assess companies’ practices and progress. Knowing what information investors are consuming will help make communications more effective and save time.

When it comes to ESG reporting, a lack of understanding in what investors expect could put the board and company at risk for negative voting action. Issuers should seek help to align their reporting content and format to their investors, so information can be easily assessed, lowering the margin for misunderstanding or error.

Regardless of where a company may currently stand with respect to analysis and integration of ESG risks and opportunities, Computershare’s team of Georgeson experts can help implement or further a company’s ESG agenda.

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C: Because the ESG environment is continually evolving, it can be complex and challenging for companies to navigate

A keen understanding of what today’s investors expect when it comes to ESG factors is essential if companies want to thrive