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The Taskforce on Climate Related Financial Disclosures, a private sector led group convened by the Financial Stability Board, sets out mandatory requirements for reporting for listed entities and other large private organisations. There are also reporting requirements that are linked to Sustainability and ESG applicable to many companies, such as; Section 172 statements in annual reports, Mandatory Greenhouse Gas Reporting and Streamlined Energy and Carbon Reporting.
So, if private companies are complying with reporting requirements - isn’t this enough? The answer to that is no.
Compared with public companies, private companies have escaped the scrutiny around ESG to some extent. However, this is likely to change. It’s important to remember that ESG goes further than the annual reporting, companies should develop and communicate robust plans sooner rather than later. Here’s why:
Talent - One of the biggest challenges for most businesses is attracting and retaining talented employees to enable growth and in some cases, survival. Corporate and social responsibility matters deeply to the so-called “millennial” generation, who make up about a third of our global workforce. If your organisation’s mission and values do not contribute to corporate and social sustainability, it will be increasingly difficult to maintain and attract a vibrant, agile, and talented workforce for the future.
Supply chain - A web-based world has created increased competition and a change in consumer profile. Consumers of the 21st century are increasingly researching the brands and products they use, and where mission or values are misaligned, they are likely to switch.
Access to finance - Lenders are coming under scrutiny to show that they are supporting ESG and sustainable strategy. Many banks and PE Houses are incorporating ESG related requirements in their re-financing and lending process. For example, ‘Sustainability Linked Loans’, which typically have interest rates linked to selected sustainability KPIs.
Developments in regulations - Whilst the current regulations apply to the premium listed and large private companies, it has already been indicated that this will expand to other companies. For example, the EU ESG regulations such as the Corporate Sustainability Reporting Directive and the EU Taxonomy Regulations have set out their plans to include SME’s by 2026.
In addition, it’s worth remembering that whilst your company may not be required to provide all of the various ESG related disclosures, companies are likely to be in a supply chain with companies who are. To avoid the risk of losing out, not only may you be required to provide the information, but you may also need to align your values. This information can be difficult to obtain and validate.
The list of frameworks and principals is vast and difficult to navigate. Whilst the IFRS Foundation indicated they are developing a global sustainability reporting standard to achieve a greater level of standardisation for ESG reports, it will be up to businesses to operate and report their company’s strategy and results using the guidelines and frameworks available.