ESG reporting is in constant flux. Whether it be new regulations, voluntary standards, emerging issues or changes in the geopolitical landscape, there are always factors pushing companies to think again about what to say and how to say it.
While material issues shift from company to company and sector to sector, conversations with leading IR and sustainability teams around the world highlight some of the shared priorities for producers of ESG reports in 2023.
National Grid, the energy utility that operates in the UK and US, won best ESG reporting at the IR Magazine Awards – Europe 2023. Recent changes to its reporting approach include increasing its disclosures and boosting alignment with new standards, says Dan Evans, IR analyst at the company.
‘This includes embedding ESG reporting into our full-year and half-year results reporting and gaining limited external assurance,’ he says. ‘Also, we’ve announced that we anticipate around £29 bn ($35 bn) of our five-year capital investment programme will be invested directly into the decarbonisation of energy networks, and this is aligned to EU taxonomy principles.
‘In addition, across 2022/2023 we released for the first time several dedicated publications outlining pathways to meet our ESG commitments, such as our ‘Climate Transition Plan’ and ‘Fair Transition’ reports.
‘We recognize the importance of having publicly verifiable and externally assured information to enable investors to accurately assess ESG credentials. In an environment where there is an ever-increasing demand for data from ratings agencies, and interpretations of such data, we believe this is particularly important.’
With regard to the dedicated publications, Evans says both the buy side and sell side are increasingly focused on not just which goals companies have but also how they are achieving their objectives. ‘There is not only a requirement to evidence strong commitments and progress, but also a desire for us to shine a light on how we are delivering against our commitments in a fair and affordable way,’ he says.
Another goal for National Grid’s sustainability reporting is making the information more digestible and tailored to different stakeholder demands. ‘We continue to add to our ‘Grid Guide to…’ video and audiocast series, which provides short deep-dives on specific ESG business themes,’ Evans says.
‘Also, in 2022 we held our first ever dedicated group responsible business investor event – hosted by our CEO and chief sustainability officer – and put on our second such event live from New York last week, which was a real success. Finally, we continue to report lots of information on our dedicated ESG IR web page, which was designed and published last year.’
Regulation and competition
For ČEZ Group, which was nominated for best ESG reporting (large cap) at the same awards, there are two main focus areas for 2023, says Kateřina Bohuslavová, chief sustainability officer and head of the ESG office at the Czech energy conglomerate.
‘The big one is preparing for future legislation,’ she says. ‘For us, it’s the European Sustainable Reporting Standards (ESRS), which were finalized during the summer. We’ve been closely monitoring progress and have done a gap analysis. Actually, we launched a new stakeholder engagement process using the framework that’s defined by those standards.’
The key change for many European companies that derives from the ESRS is the focus on double-materiality: reporting on not just how ESG issues affect the business, but also the company’s impact on the outside world. ‘Double-materiality is about impact,’ Bohuslavová says. ‘So it’s not about what you think or what’s important for you. It’s about measuring, or at least gauging, real impact. And that’s not easy.’
ČEZ Group is also closely monitoring other voluntary standards. ‘We know the Due Diligence Directive is being prepared,’ Bohuslavová continues. ‘So we’re doing a supply-chain assessment with EY to get a roadmap for the next couple of years. That’s going to be a huge exercise – reporting and collecting data for the supply chain is really, really big.’
The other key priority for ČEZ Group is matching best practice in other markets. While it has plenty of European regulation to think about, the company is mindful of how stakeholder expectations are evolving in other locations, and is eager not to fall behind.
‘In the UK, TCFD is mandatory,’ Bohuslavová says. ‘For us, it’s not. But if investors use that and they’re looking at us and we don’t have that report, then compared with other companies we’re losing.
‘Another example would be supply-chain laws in Germany and France… I can’t say to investors or ratings agencies, We don’t have to do that because that legislation is not here yet. I have to keep up with the competition. That’s why we published out first TCFD report in 2023.’
In addition, Bohuslavová concurs with Evans that investors increasingly want information on how companies are meeting their sustainability targets. ‘What we’ve observed is a trend,’ she says. ‘The trend is: we don’t care about your promises anymore. We care about your performance against the targets. It’s not enough to have a decarbonization strategy or transition pathway. It’s about whether we’re actually doing the work and providing data that shows we’re on track.’
Growing and evolving
Another company making strides in its climate disclosure is Agnico Eagle Mines. The firm, which won best ESG reporting (large cap) at the IR Magazine Awards – Canada 2023, launched its first climate action report in late 2022 and also set the goal of a 30 percent reduction in Scope 1 and Scope 2 emissions by 2030.
‘We’re always evolving to meet the increasing needs of our various audiences,’ explains Melanie Plante, sustainability performance and engagement manager at the miner. ‘We also want to reflect the realities of our organization, [which] has grown a lot over the last several years.’
Indeed, Agnico has expanded in size and geographical footprint significantly in recent years, in particular via a 2022 merger with Kirkland Lake Gold. Today the company has a market cap of C$35 bn ($26 bn) – up around four times in 10 years – and operations spanning Canada, Australia, Finland and Mexico.
‘We’ve been doing sustainability reporting for a long time,’ Plante says. ‘But it needs to change to reflect our more global operations and the bigger footprint that we have. So one of the things we’ve worked on, and I encourage anyone to work on, is developing more long-term and measurable objectives to include in the sustainability report.’
Alongside new targets on climate, the latest report from Agnico also includes multi-year objectives for other areas, like communities, health and safety and employees, Plante continues. ‘We really wanted that big picture of long-term goals communicated to our audience,’ she says.
Shorter and sharper
Another change, as the organization has grown, is adding shorter descriptions of sustainability initiatives in the report. ‘We’ve always included case studies and feature stories of the different work taking place on the ground,’ Plante says. ‘Now that we’re a much larger company, however, we can’t cover everything in those stories – it would be a 200-page report.
‘But it’s important work that’s happening and we want to communicate it to our audience so, in a lot of our key sections, we’ve added shorter bullet points that cover those initiatives. We’re communicating them to our audience, but it’s not taking up as much space.’
There are two main ways Agnico gets feedback from investors and analysts on its sustainability reporting, adds Carol Plummer, executive vice president of operational excellence at the company. ‘The first is, probably a couple of times a year, we sit down specifically with the people in charge of ESG and they talk to us about the way they are pulling information out of the reports. We get quite detailed feedback from them,’ she says.
‘The other is based on the types of questions we get asked over the course of the year. And then we make sure we’re providing a significant volume of information around the more-often asked questions without letting the other subjects dwindle away. That’s why biodiversity had a bit more focus in this latest report than it has had previously.’
Staying on top of sustainability reporting requires anticipating where stakeholder focus is likely to grow. In this regard, National Grid, ČEZ Group and Agnico all agree biodiversity is an area that will need greater disclosure in the coming years.
While attention on the topic has been growing for a number of years, a big step forward took place at the COP15 conference in Montreal last December where governments agreed a target to protect 30 percent of the world’s land and oceans by 2030.
Then, last week, the Taskforce on Nature-related Financial Disclosures (TNFD) finalized its disclosure recommendations, handing companies a framework for discussing this topic with investors and other stakeholders.
‘We know biodiversity and nature are emerging topics, with all the work that’s going on with the TNFD, summits around biodiversity [and] commitments from countries for nature-related targets,’ Plante says.
‘This is something that, as a mining company, we’ve always been focused on: good, strong biodiversity management and considerations for nature. So it aligns really well with what we’ve been doing for a long time – it’s more about communicating and disclosing that information within the frameworks and the format that the audience is looking for. That’s certainly something to pay attention to.’
Another area where companies anticipate more stakeholder focus is supply chains. ‘We anticipate increased scrutiny of supply-chain management given the high costs of energy, materials and labor, and the climate-related impacts these are having,’ Evans says.
‘Most large multinational businesses generate a sizeable amount of emissions through their supply chains, so we expect a focus to be placed upon companies to set targets to reduce indirect emissions.
‘This is a prerequisite for setting Science Based Targets Initiative targets, with which National Grid’s near-term emissions reduction targets are aligned. We continue to work closely with our supply chain to reduce our indirect Scope 3 emissions by 37.5 percent by 2034, from a 2018/2019 baseline.’
Stakeholders are also expected to request more information on human capital issues. Plante points to the various disruptions that are coming to the workplace, such as the growth of automation, the use of artificial intelligence, the large numbers of workers due to retire soon and the need to retrain staff as countries shift to a low-carbon economy.
‘Your workforce and utilizing your human capital are so important for your success as a business,’ she says. ‘I really expect that we’re going to see some more questions in terms of how you are attracting talent, how you’re developing talent [and] how you’re making sure you’re utilizing that talent. I think that’s something we’re really going to see come at us in the next few years.’