The Intergovernmental Panel on Climate Change (IPCC) has released its Synthesis Report, which provides information on the physical science, impacts, and mitigation tactics addressing the climate crisis. The report confirms we have a brief window to avoid the most disastrous effects of climate change.

Acknowledging the contributions made by industry, the private sector has been mobilizing around corporate climate action, setting net-zero targets in accordance with the Paris Agreement goals adopted at the UN Climate Change Conference in 2015. The goal of net-zero emissions aligns with the scientific consensus that we must limit global warming to 1.5 degrees Celsius above pre-industrial levels.

Climate neutrality refers to mitigating greenhouse gas (GHG) emissions to achieve a net-zero carbon footprint. Becoming climate neutral involves reducing GHG emissions from your company’s operations to the extent possible and compensating for emissions that can’t be reduced. This compensation can take the form of carbon credits that help fund mitigation tactics to remove, offset, or avoid emissions.

Although carbon dioxide is the largest overall contributor to climate change, climate neutrality covers all GHGs including methane, nitrous oxide, and hydrofluorocarbons, which have much higher global warming potential. This means smaller amounts of emissions lead to more accelerated warming. Some companies are going beyond commitments to climate neutrality. They are aiming to become climate positive by removing additional emissions beyond the scope of their own carbon footprint.

Pursuing climate neutrality goals can provide environmental, economic, and social benefits. Mitigating emissions can help reduce negative impacts on both people and the planet in the face of the climate crisis. This includes reduced biodiversity and worsening climate events such as drought, fire, heatwaves, and hurricanes.

Additionally, the impacts of climate change are not distributed equitably. Marginalized communities bear the brunt of environmental injustice by industrial polluters as well as extreme weather events. The U.S. has been the largest contributor to date of carbon emissions. This is why it’s worthwhile to reflect on our role in the global community.

Economic benefits come into play when a company considers differentiation within their market. Today, customers are looking to align their purchases with their values. According to the Yale Program on Climate Change Communication, 53% of Americans are alarmed or concerned about global warming.

Results from IBM sustainability research indicate almost half of consumers say they’ve paid a premium for products branded as sustainable or socially responsible. Companies actively engaged in creative emission reductions can gain a competitive advantage through innovation as well as benefits in attracting and retaining talent.

The nonprofit leads a global movement of individuals and companies to eliminate carbon emissions. Their label, Climate Neutral Certified, is a trusted, independent standard that helps consumers identify brands that are leading on immediate climate action. Companies that get certified must reduce and compensate for all of their emissions resulting from the production and delivery of their products and services.

The first step begins with measuring your organization’s Scope 1, 2, and 3 GHG emissions to calculate your carbon footprint. Once you’ve accounted for your company’s emissions sources, you can examine that data to identify hotspots within your value chain. Then, you can target the largest contributors to your footprint.

Meaningful reduction action plans ensure employees across various departments become engaged with decarbonization efforts. This increases the organization’s likelihood of achieving success. By setting incremental goals and attaching metrics and KPIs on the way to climate neutrality, your company can start to track what’s working and what isn’t.

Reducing emissions takes time. Developing an offset strategy is the final part of mitigating the emissions your company has already created.

For many organizations, reducing emissions 50% by 2030 and achieving net zero by 2050 is the minimum target. Some companies are setting accelerated goals under The Climate Pledge, which is the goal of reaching net zero by 2040.

The U.S. public sector has also started to join the private sector in climate action. For example, the Inflation Reduction Act provides incentives to make adopting renewable energy easier and more cost-effective.

Recognizing that climate and social justice must be centered in all action taken, the Justice 40 initiative is promoting a transition away from a fossil-fuel dependent infrastructure in the U.S. by setting a goal that 40% of the benefits reach underserved communities.

With the looming SEC proposal requiring large public companies to disclose their emissions and the Corporate Sustainability Reporting Directive in Europe, the global regulatory environment continues to evolve.

Climate neutrality is achieved by measuring your company’s carbon footprint, understanding significant sources of emissions, and creating strategies to mitigate those emissions. Many corporate climate claims and sustainability initiatives lack immediacy and often omit Scope 3 value chain emissions. Becoming Climate Neutral Certified is an important step toward increased transparency, consumer trust, and accountability.

As a Climate Neutral Open Certification consulting partner, the Sensiba Center for Sustainability has expertise in GHG accounting, developing reduction strategies, setting science-aligned targets, and advising on verifiable carbon credits. Reach out to learn more about how you can take immediate action toward your emissions reduction goals.

Biodiversity is the variety of life on Earth, including species, ecosystems, and genetic diversity within species. It encompasses the diversity of plants, animals, and microorganisms, as well as the ecosystems they form and the variety of interactions between species.

Biodiversity is essential for our planet’s ability to function and provide resources that are important for human well-being. These resources range from food, fuel, and medicines to water purification and climate regulation.

The loss of biodiversity is a pressing global issue with significant impacts on the sustainability of our planet’s ecosystems. Human activities, including habitat destruction, over-exploitation, pollution, and climate change, pose significant threats to biodiversity. Consequently, many species face the risk of mass extinction. Additionally, ecosystems are being degraded because of these activities.

The business sector has a key responsibility to contribute towards preserving biodiversity. This article will explain how different human activities are harming our planet’s biodiversity and how companies can play a role in saving it.

Habitat destruction is a significant driver of biodiversity loss, as it fragments and reduces the amount of land available for wildlife and disrupts the delicate balance of species interactions. This destruction occurs when natural habitats, such as forests, wetlands, and grasslands, are cleared or degraded for human purposes. Some common causes of habitat destruction include activities such as agriculture, urbanization, or resource extraction.

As habitats shrink or disappear, many species are left without food, water, shelter, and other resources they need to survive. This can lead to declines in population sizes and an increased risk of extinction. Habitat destruction also increases the likelihood of genetic isolation, inbreeding, and loss of genetic diversity as small and fragmented populations may struggle to exchange genes.

In addition, habitat destruction often leads to changes in the physical and biological conditions of the remaining habitat, such as increased erosion, altered hydrology, and the introduction of non-native species. These changes can significantly impact an ecosystem’s biodiversity, altering the structure and function of communities and their services.

Conserving and restoring habitats is essential for many species’ long-term survival and for maintaining healthy ecosystems. These can be done by reducing the rate of habitat destruction and protecting and restoring areas of high biodiversity value. Organizations can help by promoting sustainable practices to conserve habitats while supporting human livelihoods.

Over-exploitation involves the excessive harvesting of species and the degradation of ecosystems. This can occur when species are hunted, fished, or collected at rates that exceed their ability to reproduce and maintain stable populations. Over-exploitation can also occur when forests are cleared for timber or wetlands are drained for agriculture.

The consequences of over-exploitation can be severe, as it can lead to declines in population sizes, increased risk of extinction, and alterations to the structure and function of ecosystems. It can also have cascading effects, as species declines disrupting the balance of species interactions, leading to further reductions and loss of biodiversity.

Overfishing decreases the abundance of certain species, which can alter the food web and reduce the overall biodiversity of an ecosystem. It was reported that Vaquita dolphins are down to a mere 10 individuals left in the ocean and threatened with extinction.

It is crucial to sustainably manage and conserve species and ecosystems to protect biodiversity and ecosystems’ resources. This involves setting limits on the harvest of species, protecting critical habitats, promoting sustainable practices, and reducing the drivers of over-exploitation, such as poverty and unsustainable consumer demand.

Pollution has harmful impacts on individual species’ health and entire ecosystems. Damage can come from many sources, including chemical pollutants, such as pesticides and heavy metals, and physical pollutants, such as plastic waste and noise.

Chemical pollutants can have toxic effects on individual organisms, leading to declines in population sizes and an increased risk of extinction. For example, pesticides can kill off predators, allowing pests to proliferate and reducing species diversity within an ecosystem. Heavy metals can accumulate in the tissues of organisms and cause reproductive failure, impaired immune function, and other health problems.

Physical pollutants can have severe consequences for biodiversity. Marine life, such as sea turtles and seabirds, can be harmed by ocean waste, while other species, including fish and corals, experience a decline in environmental quality. For example, non-biodegradable plastic can entangle and suffocate wildlife, causing injury or death.

Reducing pollution and promoting sustainable practices are critical for protecting biodiversity and maintaining healthy ecosystems. These involve reducing the release of pollutants, improving waste management practices, and promoting the use of alternatives to harmful chemicals.

As temperatures rise and weather patterns change, ecosystems are altered, disrupting the delicate balance of species interactions. Many species struggle to adapt to these changes and are at risk of extinction as their habitats shrink or shift.

Rising temperatures are changing seasonal events, like the flowering of plants and the migration of animals, leading to mismatches between species that rely on each other for food or pollination. Warmer oceans are also causing coral reefs to bleach and die, which has cascading effects on the many species that depend on these ecosystems for food and shelter.

Climate change worsens problems like habitat destruction and over-exploitation. This is because it leads to frequent and severe droughts, hurricanes, and other natural disasters that can further reduce biodiversity.

Conserving biodiversity and mitigating the impacts of climate change is critical for our planet’s long-term health and its inhabitants’ well-being. This requires reducing greenhouse gas (GHG) emissions, protecting and restoring habitats, and promoting sustainable practices.

Businesses can play an essential role in conserving biodiversity through their direct impacts on the environment, and their influence on consumer behavior and public policies. Some of the ways businesses can support biodiversity include:

Preserving biodiversity represents a pressing challenge of great significance. By incorporating biodiversity conservation into business strategies, companies can contribute to preserving ecosystems and species while improving their reputation, reducing risks, and enhancing their long-term competitiveness.

Achieving effective biodiversity conservation requires collaboration and coordination among all stakeholders. This includes businesses, governments, communities, and individuals, ensuring that benefits are shared, and conservation goals are achievable. By taking a comprehensive and integrated approach to conserving biodiversity, we can protect and restore ecosystems, preserve species, and ensure our planet’s long-term health and well-being.

For people following recent developments in ESG reporting and disclosure, February was a hot time to be in Montreal with the International Sustainability Standards Board (ISSB) agreeing to launch the drafting and formal balloting process for the inaugural IFRS Sustainability Disclosure Standards.

Despite the below-freezing temperatures outside, the International Financial Reporting Standards Foundation met in North America’s most European city for its first Sustainability Symposium, a convening of “global businesses, investors and policymakers to discuss progress toward a global baseline of sustainability disclosures to inform investment decisions.”

Conference attendees had a front row seat as ISSB unanimously approved entering the drafting and formal balloting process for developing harmonized global sustainability and climate disclosure standards.

These new reporting and disclosure standards, which will be effective as of January 2024, are expected to be published by the end of Q2 2023.

In underscoring the strong demand from investors for companies to disclose comprehensive and comparable sustainability information globally, ISSB Chair Emmanuel Faber remarked, “We responded to capital market and G20 demand for common language of investor focused sustainability-related disclosure, working diligently to deliver standards that fulfil the global baseline. Now, we will work with regulators around the world as they play their part, creating the conditions within markets for adoption, so that investors can use comparable information about sustainability-related risks and opportunities in their investment decisions without delay.”

We celebrate this coordinated international approach to developing and aligning ESG reporting standards that include climate, sustainability, human capital, and other hot-button social and environmental issues. It is clear that IFRS/ISSB is quickly becoming the gold standard for harmonizing ESG standards globally, and we are hopeful these standards will create more clarity for how small- to medium-sized enterprises (SMEs) can respond to future disclosure requests.

This step represents the maturation of global sustainability standards, and in our opinion, provides a clear opportunity for companies to begin aligning a standardized set of industry-specific sustainability-related metrics, targets, and key performance indicators (KPIs) with bottom-line financial performance.

It is worth mentioning that ESG reporting is completely voluntary at present for SMEs, but we expect more pressure from key stakeholders (customers, financiers and regulators) in the near future to disclose this information in a standardized fashion.

Last month’s announcement from ISSB is further evidence there will likely be a regulatory requirement at some point, so now is a good time for SMEs to start getting their ESG house in order.

The U.S. SEC, for example, is expected to make a similar announcement on climate change-related disclosures for publicly traded companies by the end of April. We expect that this will trickle down to SMEs who sell to large public companies within the next couple years as the demand for more Scope 3 emissions data gets pushed down the supply chain.

It remains to be seen how this disclosure language will be worded, and who will be affected most acutely, so we will continue to monitor for updates.

While ESG disclosures are currently voluntary for most companies, now is a good time to take a comprehensive look at your organizational footprint. An ESG Assessment can help you benchmark your current initiatives and understand what types of disclosure information your customers or creditors will be looking for in the near future.

It can also serve as the foundation for a broader ESG strategy in preparation for taking future action on environmental and social initiatives in alignment with your broader business strategy.

SSF offers several resources to help you align your ESG initiatives, and the related disclosures, with your broader business strategy. We are a Platinum deployment partner of the Impakt IQ (IIQ) ESG intelligence platform. The IIQ assessment provides an investor-grade ESG framework for each client based on industry and sector, which allows them to identify, assess, and manage all material ESG issues that pose a risk or value creation opportunity to their business.

We also offer a complimentary ESG Readiness Assessment to help companies begin to take meaningful first steps on their respective ESG journeys. During a short consultation, we’ll gather information about your current situation and goals, and provide an overview of the relevant global frameworks for your industry. We’ll provide insights into your industry’s primary ESG considerations, the factors driving your ESG risks, and an overview of the business case for investing in a more comprehensive ESG Assessment like Impakt IQ.

Interested in getting started? Contact us to learn more about the next steps in your ESG journey.

Environmental, Social, and Governance (ESG) regulations that will change the face of corporate sustainability. themes include harmonizing reporting frameworks for better continuity and conformity, proposed federal and state climate-related disclosures, and a growing interest in circular production aimed at minimizing waste. These trends impact how companies approach ESG and will shape future sustainable business practices.

As ESG becomes increasingly essential for companies, various reporting standards and frameworks have emerged to provide information to stakeholders in an effort to:

The Sustainability Accounting Standards Board (SASB) is a foundational ESG framework that focuses on standardized disclosures for 77 industry sectors to help companies identify material ESG metrics within their organization.

Beyond financial materiality, a sister framework called the Task Force on Climate-Related Financial Disclosures (TCFD) is focused on helping investors understand climate risks, as well as key strategies and metrics related to greenhouse gas emissions and how to best account for climate-related metrics.

Accounting firms will likely undertake much of the reporting and documentation of ESG disclosures since they’re frequently submitted within traditional financial reports prepared by the accounting industry. In light of this, the International Financial Reporting Standards (IFRS) Foundation, which maintains global accounting standards formed the International Sustainability Standards Board (ISSB). This new branch of the IFRS is charged with developing global sustainability disclosure standards.

In 2022, the ISSB started incorporating SASB and TCFD under its guidance, with the intention of integrating and standardizing ESG disclosures and metric reporting. The finalization of these ISSB standards is expected in 2023. This move towards standardization will make it easier for leaders, investors, and stakeholders to assess companies using a consistent ESG perspective.

Organizations are monitoring the U.S. Securities and Exchange Commission, which as of March 2022 required registrants to include certain climate-related disclosures in their registration statements and periodic reports. These rules are set to go into effect by April 2023 for accelerated public filers.

Though aimed at publicly traded companies, the proposed disclosure regulations would create a trickledown effect impacting small to medium-sized privately-owned companies. Public entities will be asking for climate-related metrics from any business supplying products or services within their supply chain to report their data fully. The same requests can also be expected from additional stakeholders such as consumers and investors in the coming years.

The SEC is also expected to announce additional disclosures related to certain human capital considerations that would provide insights into how companies treat their workforce and managing internal personnel.

The concepts of circularity and regeneration are entering organizational discussions around resource consumption and upstream product design. All of this is taking place as companies and consumer attitudes move ever closer toward a zero-waste society. Companies are now examining the end-of-life handling of their products and exploring ways to recycle them back into production.

Regeneration and regenerative production are similar concepts, but regeneration goes beyond sustainability by restoring environments back to their natural states. For instance, agriculture companies are exploring how they can regenerate topsoil to ensure future production capabilities, and what that means for the sustainability of society and businesses moving into the future.

As consumers become more interested in sustainability and want to support brands that align with their personal ethos, more and more companies recognize the expanding incentives to operate under sustainable practice methods.

As we move towards a world of increasing transparency, companies have a chance to showcase their positive efforts by being open and accountable for all parts of their supply chain operations and values.

Stakeholders are quick to call out companies that are not living up to their stated actions and goals, which creates a risk of reputational damage and potential shareholder litigation. Companies must make sure they convey their progress on ESG initiatives accurately and completely.

ESG trends are playing a significant role in shaping sustainability considerations for companies in 2023. The trend towards standardizing how companies report their environmental and social impact, the push for mandatory public disclosure of ESG information, and the increasing focus on minimizing waste and promoting sustainability through circular production methods are all shaping the future of sustainable business practices. Companies that embrace these ESG trends and prioritize sustainability in their operations and strategies have an opportunity to position themselves for long-term success while positively impacting the world.

As ESG-related practices and regulations become more common in everyday operations, it is becoming increasingly necessary for small to medium-sized businesses to be proactive in their preparations to operate more sustainably. For more information on how to best prepare your business, contact our sustainability team for a complimentary ESG readiness consultation to get started on your strategy for success!

ESG is becoming a significant topic in the investing and corporate world and for a good reason. But what does ESG entail? How is it different from sustainability and Corporate Social Responsibility (CSR)? And in what ways is it valuable and material to my company?

ESG is an acronym for Environmental, Social, and Governance. As businesses strive to do more than just make a profit, the concept of Environmental, Social, and Governance (ESG) has emerged. This holistic approach takes into account the impact that businesses have on both people and the planet.

Environmental captures a company’s environmental performance and impact, which is mainly determined through a company’s greenhouse gas emissions, resource consumption, and general compliance with environmental regulations. It is mainly a framework that helps investors evaluate risk according to defined E, S, and G criteria that align with standardized global frameworks, such as the Sustainability Accounting Standards Board (SASB) or the Task Force on Climate-Related Financial Disclosures (TCFD).

The social aspect of ESG evaluates the impact a company has on its employees, customers, and the greater communities in which it operates. This is typically defined by a company’s commitment to Diversity, Equity, and Inclusion (DEI), marketing, community engagement, and supply chain.

Governance is determined by an organization’s leadership and structure, such as executive compensation, shareholder voting, company considerations when making business decisions, and general transparency and accountability to all relevant stakeholder groups.

When most individuals think of sustainability, they think of the environmental movement of 50 years ago. Just as business has evolved over the last 50 years, sustainability has too. Sustainability these days encompasses social and economic issues such as quality education and healthcare for all, reducing inequalities, and eliminating poverty. The United Nations defines sustainability as meeting the needs of the present without compromising the ability of future generations to meet their own needs.

Sustainability is a much broader concept that can take a multitude of forms based on the organization. It can be seen in the form of philanthropy, reducing waste/emissions/etc., and anything that would benefit society or the planet. ESG digs into the metrics and performance using global frameworks, such as the Sustainability Accounting Standards Board (SASB) or the Carbon Disclosure Project (CDP).

A great example to illustrate this is to look at an oil and gas company versus a company that produces all-electric vehicles. The oil and gas company may have a high ESG score but a low-impact business model. The electric car company has a good impact business model but might score very low on the ESG scale based on how they treat their employees, for example.

There are some frameworks, like B Corporation Certification, that take both performance metrics and impact into consideration™ when evaluating a company.

ESG reporting and frameworks help interested stakeholders understand an organization’s risk and opportunity management in these areas. The intention is to improve the business practices of a company while simultaneously boosting the company’s reputation with investors and customers. Especially during and after the tumultuous times of a global pandemic and following the economic downturn, investors tend to see companies who prioritize ESG as more resilient due to better long-term risk management.

There are infinite reasons ESG is valuable to an organization. First and foremost, companies have a moral obligation to uphold strong social values and a social conscience. More and more consumers and investors are scrutinizing organizations that behave antisocially or make empty promises, also known as greenwashing.

Besides that, prioritizing ESG can reduce costs, protect valuations, reduce regulatory infractions, and increase productivity. This is done through energy-efficiency and renewable energy strategies, staying compliant with all government regulations, attracting top talent, and decreasing employee turnover.

To reap these benefits, a company must determine what is relevant to its business success and what is important to its stakeholders. A materiality assessment is a formal process that considers an organization’s industry and size to identify environmental and social issues and informs stakeholders for strategic decision-making. It also identifies how financial targets and environmental and social performance overlap and what actions can be taken to improve both.

Sensiba offers three comprehensive ESG assessment options. Impakt IQ (IIQ), SASB and B Corp Certification™. Which one is suitable for your organization ultimately depends on your organization’s needs and goals. IIQ, SASB, and B Corp set baselines and benchmarks but vary in rigor, detail, and accountability. SASB is an introductory ESG assessment, IIQ is a moderate to rigorous evaluation, and B Corp offers a third-party certification of ESG scoring and impact business model performance.

The IIQ Assessment requires 7-9 C-suite leaders and takes about 3-4 months to produce a detailed, investor-grade framework that integrates ESG metrics into a company’s DNA. This assessment is appropriate for an organization that can invest significant human and financial capital toward holistic transformation from “business-as-usual.”

SASB takes 1-3 executives and about 6-8 weeks to produce the top 5-10 Key Performance Indicators (KPIs) and a high-level strategy and roadmap for the future.

B Corp Certification takes a single executive-level sponsor and about 1-1.5 years to complete the B Impact Assessment and proceed through verification for certification. Once complete, an organization will have an ESG-type score and an impact business model score. This route is appropriate for consumer-facing companies looking for a more purpose-driven business transformation.

By understanding what ESG is and its benefits, your company can make strides in becoming a leader in responsible business practices. Good environmental, social, and governance policies result in better risk management and improved relationships with investors, customers, and employees. A materiality assessment can help you identify which areas are most important for your company to focus on. For more information on how we can help you get started, contact us today.

Contact our team for more information about the Sensiba Center for Sustainability and how we can help you on your ESG journey.

As the world evolves and the B Corp movement grows (both in size and strength), its standards must also progress to ensure B Corps are making meaningful impacts towards an equitable and regenerative economy.

At the end of 2020, B Lab announced their standards (also called performance requirements) were undergoing a review. Now that the review has been completed, the B Corp community received an in-depth look at their new requirements.

The current B Lab standards for B Corp Certification are relatively simple, even if the journey of getting it is complicated: earn an overall verified score of 80 and meet B Lab’s legal requirement by either amending governing documents or becoming a Benefit Corporation. While that may sound easy, any company that has ever gone through the process can tell you it’s not; it is a rigorous and comprehensive process that can take a year or more.

Despite this rigor, the current standards have their limits and challenges. In particular, the certification of many larger multinationals in recent months has put the standards under heightened scrutiny. This has called into question the certification’s accountability and effectiveness for driving positive impact.

To ensure the longevity of B Corp Certification, B Lab worked with the Global Reporting Initiative (GRI) on their new standards to fill the gaps in their reporting and make ESG reporting more consistent.

The new requirements call for higher accountability on climate action, social justice, equality, public health, and other pressing social and environmental issues. The new framework has ten specific topics that are applicable across industries and most relevant to the goal of creating an inclusive, equitable, and regenerative economy, listed below:

The biggest change is the movement away from a simple 80-point minimum. This standard was too flexible and allowed companies that many deemed disingenuous to gain certification. Many companies can pass an 80-point threshold by leveraging a specific positive environmental or social impact while contributing negatively to another area. Now, companies must meet minimum requirements in all ten of these categories to gain certification.

For a company to be eligible for B Corp Certification, it must track its greenhouse gas (GHG) emissions annually and implement a climate transition plan to contribute to keeping global warming below 1.5 ° under the Climate Action area. More information on the specifics of each new standard can be read here.

The new standards are much more specific and will help ensure that all B Corps are doing their part to advance important social and environmental issues. One of the issues that is most likely to cause concern for many smaller businesses is the burden of proof that these different categories may pose, greatly decreasing their chance of certification despite the fact these smaller companies are relatively low risk compared with medium to large enterprises.

The future isn’t certain, but our B Corp Consultants are ready for the challenge. The new standards are substantially more rigorous, but this also means the certification will have higher accountability and, therefore, favorability among consumers and investors. Establishing yourself as a purpose-driven enterprise is a key differentiator in today’s landscape. A B Corp certification is a great way to make ESG and climate action part of the DNA of your business.

Contact our team for more information about how we can help you become B Corp Certified.

Corporate responsibility is a growing priority and has significantly increased in importance to consumers, investors, and other key stakeholders for both public and private companies. This emerging cultural movement concerning Environmental, Social, and Governance (ESG) metrics from corporations has caused an exponential increase in the number of ESG reports conducted by companies across all sectors.

While increased ESG reporting is generally seen as a proxy for progress, these ESG reports are often misleading, nonstandard, and imprecise. Most companies do not engage in third-party verification of their ESG reports, leading to ambiguous and incomplete data.

Due to the lack of mandatory compliance and auditing within ESG, there is a heightened risk of greenwashing, which can create significant reputational and financial risks. The lack of third-party auditors has caused many consumers, investors, and other stakeholders to be cynical concerning the reliability and validity of ESG reports, especially those completed internally.

According to Natixis, almost three-quarters of investors and two-thirds of fund selectors say it is unclear which ESG-relevant data is material to investment analysis. In that same study, 71% of investors agreed that they want to make a positive social impact with their investments, and 81% said they want their investments to match their values. On top of that, 77% of fund selectors say ESG factor analysis is integral to sound investing.

Sustainability accounting improves transparency and validity, which is why using an accounting firm for ESG reporting is highly valuable. Accountants have a wealth of experience producing high-quality, audit-worthy deliverables, and these skills are transferrable to the nonfinancial aspects of a company. In the ESG field, there is a growing desire for ESG reports that mirror the compliance and regulation in financial reporting.

As regulation and auditing become more standard in reporting, having poor internal controls and inaccurate published reports can put a firm at risk. By using an accounting firm with regulatory and auditing experience in the financial aspects of business, a company can safeguard the risk of greenwashing by having audit-ready deliverables that accurately capture the environmental and social impacts and risks.

Presently, sustainability is seen as a buzzword rather than a well-established and defined approach. This starkly differs from financial reporting, which is held to much higher standards and regular auditing and compliance. The goal of financial reporting is to produce an accurate and detailed overview of the financial status of a company.

The same goals are present in sustainability; however, there is a notable lack of regulation. Both financial and sustainability reporting seeks to increase transparency and accountability, gain consumer and investor confidence, and improve a company’s overall reputation.

There is also a well-established link between a company’s financial performance and having stronger corporate social responsibility. Despite these similar goals, financial reporting continues to be much more standardized and regulated. The increase in third-party auditing and regulations will bring credibility to ESG reporting and increase opportunities and value creation.

Currently, private companies are not required to disclose. There is also an increasing number of retailers, investors, and consumers who want to know a company’s ESG commitments and stewardship before engaging in business to ensure this information is accurate and reliable.

It is then crucial to proactively compile thorough, accurate, and audit-worthy ESG reports sooner rather than later as market pressures continue to grow in this area. Due to the complicated nature of ESG reporting, working with an accounting firm can accelerate your business past competitors. Contact our team for more information about ESG reporting.