Get ready for the next wave of ESG reporting

As featured on BusinessMirror: Get ready for the next wave of ESG reporting

Over the past two decades, Environmental, Social and Governance (ESG) reporting has increased in transparency and importance, with greater integration of ESG-related information into mainstream financial reporting.

According to KPMG’s 2022 Global CEO Outlook, 69 percent of CEOs see significant stakeholder demand for increased transparency and reporting on ESG matters (up from 58 percent in 2021). Next to this, 72 percent feel that stakeholder scrutiny regarding ESG issues — such as climate change and gender equality — will continue to accelerate. Additionally, more than one-third believe their organizations struggle to narrate a compelling ESG story.

The number of companies that publish sustainability reports has been growing steadily over the past decade. KPMG's 2022 Global Survey of Sustainability Reporting shows that 79 percent of the N100 group (the leading 100 companies in every country surveyed) report on sustainability. Among the world's top 250 companies (G250), this figure is 96 percent. For smaller companies, however, these figures are likely to be considerably lower.

In a rapidly evolving landscape, global regulations are compelling organizations to a heightened level of transparency. As these new ESG reporting regulations (such as the Corporate Sustainability Reporting Directive) gain traction, companies worldwide are finding themselves in a position to prepare comprehensive baseline reports that align with the demands of this emerging paradigm of sustainability and responsible governance.

Investors increasingly recognize the link between sustainability and corporate success. Overall, they are more likely to direct their investments toward companies that can demonstrate their ESG credentials. Nearly three-quarters of CEOs surveyed in the 2022 KPMG CEO Outlook agree that progress on ESG improves corporate financial performance, which is an increase of 38 percent compared to 2021. Greater transparency enables investors and stakeholders to make informed decisions based on companies' true level of sustainability.

Companies must now also disclose, in greater detail, their transition plans to a lower carbon economy, supported by clear actions and reflected in their strategy. Implementing the standards is not just about compliance, it's a strategic, board-level issue. And more and more suppliers are being asked to share information about the integrity of their supply chains. Specifically, concerns about vulnerabilities to climate change and strategies for climate change mitigation and adaptation are frequently being raised. Organizations that cannot provide the required level of transparency risk exclusion from their traditional marketplaces. This is about how companies face social risks as well as climate risks, and physical as well as transition risks — all the more reason to integrate ESG into corporate risk management systems. The effective management of ESG risks and opportunities helps companies build future-proof and resilient businesses.

The European Union's (EU) Corporate Sustainability Reporting Directive (CSRD) which aims to enhance the quality and consistency of corporate sustainability disclosures across EU member states, also holds significant implications for the Philippines. The CSRD's influence extends beyond the EU's borders due to its wide-reaching requirements and global impact on sustainability reporting standards.

Many Philippine companies are part of global supply chains, supplying goods and services to international markets. Aligning with CSRD requirements can help Philippine companies meet the sustainability expectations of their international counterparts, ensuring their continued participation in global supply chains.

On the other hand, the International Sustainability Standards Board (ISSB) has been making significant developments in setting global sustainability reporting standards. On June 26, 2023, the International Sustainability Standards Board (ISSB) has just issued  its inaugural standards — IFRS S1 and IFRS S2 —ushering in a new era of sustainability-related disclosures in capital markets worldwide.  As the Philippines has expressed its intention to adopt these standards, it signifies the country's commitment to aligning with international best practices and enhancing transparency in sustainability reporting.

The ISSB is a part of the International Financial Reporting Standards (IFRS) Foundation and aims to develop a comprehensive set of sustainability reporting standards that are globally recognized and widely adopted. These standards will provide a harmonized framework for organizations to report their environmental, social and governance (ESG) performance, enabling comparability and consistency across industries and regions.

By adopting the ISSB standards, the Philippines complies with a more standardized and reliable approach to sustainability reporting, ensuring that companies consistently disclose relevant ESG information. This promotes transparency, builds investor confidence, and helps stakeholders make informed decisions about the organizations' sustainability practices.