Why Current ESG Reporting Is Dangerous For Everyone

By Ariane Hofstetter, CEO of KOHORTEN and Michael Diegelmann, Founder and General Manager of cometis

While the importance of ESG (Environment, Social, Governance) issues, sustainable investments and transparent ESG reporting continues to grow, the Global ESG Monitor (GEM) shows that companies from DAX, EUROSTOXX, ASX 50 and Dow Jones still place too little emphasis on sustainability. In an international collaboration, led by LCI’s German Public Relations Global Network (PRGN) PR partner, cometis, and the market research institute KOHORTEN together with their other PRGN partners Currie and Xenophon Strategies, the report examined 140 of the world’s largest companies for the quality of their sustainability reports. The result: superficiality, lack of transparency and gaps. For example, 81% of the reports are silent about how the company identified stakeholders. 65% provide no information on sustainability targets and objectives not met.

This superficiality is so problematic because, on the one hand, the reports are not transparent for stakeholders and, on the other hand, they are also less comparable with those of other companies. Investors increasingly attach importance to the fact that their assets are not simply invested with profitable companies, but also make a contribution to sustainability. In other words, the assets should make an additional social and environmental contribution. Yet, for example, only 39% of the reports provide information on ESG-related risks, as GEM found out. If there is only insufficient information available, how can investors decide which company deserves their funding?

Moreover, ESG financial products are the fastest growing area in asset management. According to expert opinions, European ESG assets are expected to reach between €5.5 trillion and €7.6 trillion as early as 2025, accounting for between 41 and 57 percent of total fund assets in Europe. To be included in these sustainable financial products, however, companies must also deliver positive ESG performance. The validity of this cannot necessarily be stated on the basis of these reports.

Many investors rely on the opinion of rating agencies in this regard. Yet these are based on companies’ own statements or on the evaluation of publicly available information on the Internet by algorithms. These sources are not necessarily reliable and are therefore not suitable for assessing the ESG performance of a company. Furthermore, rating agencies have different claims and focuses in their ratings. Top companies in one rating may perform particularly poorly in others.

Another problem is that ESG reporting is supposed to promote competition for sustainable business. However, since most companies perform poorly, this is not the case. One reason for the bad results could be, that there are no internationally applicable regulations for ESG reporting that could promote such competition. While there are already initial regulations in Europe, there are hardly any in the USA (yet). German DAX companies score an average of 43.9 out of 66 points in the GEM, EUROSTOXX companies an average of 38.9 points and Dow Jones companies score an average of 27.7 points. However, DAX and EUROSTOXX companies only perform so well in the GEM, because the other companies do even less in the area of sustainability.

One company is listed on both the DAX and the EUROSTOXX

Those companies are not simply missing out on a trend – they are missing out on their opportunity to play a part in solving globally pressing problems. These problems include social inequality, inclusion and the environment, which exist not only in emerging and developing countries, but also in the USA and other industrialized nations. In a globalized world, it is in the hands of these companies to bring out improvements and solutions, to document their progress and to be a role model for others as global investors are increasingly doing.

By ensuring a diverse workforce (including leadership), upholding human rights throughout the whole supply chain and continually reducing their environmental footprint, these companies are not only mitigating their own financial risks. They also make a valuable contribution to protecting the planet and its inhabitants.

With the help of the GEM, companies can bring one of their most important tools for this development, the ESG Report, to an appropriate level. The wide range of data allows a comparison and a good analysis of their own status and that of their peer groups. The GEM guides best-practice ESG reporting and true transparency for investors, improving not only your reputation but also your bottom line – and making the world a better place.

Learn more at: https://globalesgmonitor.com/.

Leave a comment below or tweet the cometis team at @cometis_AG.

Related Articles:

PRGN: Six reasons why sustainability matters for all companies

PRGN: What most companies get wrong when doing their first ESG report

Cometis: The role of ESG for private equity

 

6 thoughts on “Why Current ESG Reporting Is Dangerous For Everyone

  1. Ariane/Michael: Thanks for your thoughtful blog post. It’s clear that ESG is growing significantly and being more important as a driving force for investors. Many thanks for highlighting this growing trend. Cheers, David

    1. Dear David,
      thank you for your comment and the chance to publish our thoughts on this wonderful blog! We feel that this is such an important topic. For everyone as well as for the industries we are working in.

  2. Really interesting Michael and Ariane – a good example of how we need to make sure that doing good is done well!

  3. As someone with a background in PR and who works in corporate sustainability I was fascinated to learn from this study that disclosures about stakeholder dialogue are generally low in ESG reports from large, listed companies worldwide. Isn’t who you know (and what they think of you) the key to success?

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