ESG and Sustainability

ESG and a Sustainable Business Strategy

  • provide access to global capital available only to a restricted set of clients

  • are the best protections against financial distress

“Short-termism” is likely the leading cause of financial difficulty as it blinds management to risks just beyond typical horizons. Investors are laser-focusing on the following:

 

  • Is a strategic plan in place consistent with ESG reporting agencies (e.g., TCFD, SASB, GRI) applicable to your industry?
  • How well does it hold up against multiple climate change scenarios?  Has the Board approved the scenario assumptions?  Has the Board reviewed performance and projections against the scenarios?
  • Have risk metrics been established to identify early stages of financial distress?
  • Is the Management Incentive Plan consistent with the Long-Term Strategic Plan of the company, especially as it relates to climate goals?
  • Does the company possess adequate liquidity/working capital to enable it to get through any rough spots identified in its scenario planning?

Governance is critical to your credibility with Banks and Investors.

Banks are pressured to disclose their exposures to direct and indirect exposures to the risk of climate change.

 

 

Establishing and adhering to real and measurable ESG standards will demonstrate you are sensitive to these pressures.

 

 

A viable, workable governance system differentiates your company  providing a competitive advantage in reliable access to capital in a cost-effective manner.

The Best ESG Disclosure

  • focuses on forward-looking metrics that relate to the value-creation activities of the firm.
  • is integrated into the company’s main financial statements (10k’s, etc.) where they receive a high degree of rigor.
  • Integrated Reporting is highly prized by the financial and investment community.
  • The International Integrated Reporting Council (IIRC), a global coalition of regulators, investors, companies, standard setters, the accounting profession, academia, and NGOs has stated that “…an integrated report is a concise communication about how an organization’s strategy, governance, performance, and prospects, in the context of its external environment, lead to the creation of value in the short, medium, and long term.

Standards setters are coalescing around a set of disclosures that will provide more clarity to both issuers and investors that have been frustrated by the proliferation of confusing and contradictory systems.  Greater clarity is just around the corner as the IFRS is in the middle of a standard setting review.