Bridging the gap on ESG reporting through dialogue

CPA Canada brought together senior business leaders to learn about the Sustainability Accounting Standards Board's work, and discuss best practices for elevating environmental and social issues on boardroom agendas.

Bridging the gap on ESG reporting through dialogue

“Investors globally have made their position on Environmental, Social and Governance (ESG) information clear: When it is material to a company’s business, they believe it is important,” said Elisse Walter, Sustainability Accounting Standards Board (SASB) member and former chair of the Securities Exchange Commission (SEC), and keynote speaker at a recent Chartered Professional Accountants of Canada (CPA Canada) roundtable.

Ms. Walter was in Toronto to address a prominent gathering of senior Canadian business leaders on the intersection of ESG issues with business strategy, risk management and performance, including evolving expectations about board oversight.

The keynote address was followed by a roundtable discussion that provided stakeholders with the opportunity to engage in a dialogue with SASB on ESG reporting developments and best practices taking place globally, and to explore ideas on how to elevate ESG on a company's board agenda.

From left: Joy Thomas, Maureen Jensen, Elisse Walter, Tashia Batstone

Sustainability reporting progress: key drivers

“Sustainability is about trust, which in many ways, is the essence of corporate governance,” said Ms. Walter.

In her address, she acknowledged that there has been an increased company focus on sustainability reporting, with financial performance and sustainability reporting currently an intertwined business imperative for many companies.

She elaborated on two key macroeconomic and microeconomic perspectives driving this progress.

Boards of directors are establishing greater trust and credibility with a broad range of stakeholders — from shareholders to employees and the communities in which they operate — by increasingly embedding sustainability into their core responsibilities.

As a way to gain competitive advantage, companies are also looking at sustainability issues in the form of business risks and opportunities. By effectively measuring, managing and communicating company performance on material ESG issues, companies understand that they are better positioned to take advantage of new opportunities ahead of their competitors, and avoid potential risks and issues, Ms. Walter explained.

Elisse Walter, Joy Thomas

Expectations gap between investors and companies

Recognition of the inextricable link between sustainability performance and financial performance continues to grow. However, Ms. Walter cautions that there is still work to be done to bridge the gap between what investors want and what companies are providing.

She stated that although a recent SASB analysis of SEC filings demonstrated that companies are addressing key sustainability issues alongside their financial statements in public filings, less than 24 per cent of reported sustainability topics are being disclosed using metrics. More than half use boilerplate language, which is less decision-useful for investors as they evaluate alternative investment opportunities.

Ms. Walter advises companies to view sustainability reporting as an opportunity to tell the full story about their value-creation rather than as a compliance related corporate social responsibility exercise. The question for companies, she asserts, should no longer be about more disclosure, rather it should be about better disclosure.

To improve focus on sustainability factors important to management and investors, Ms. Walter encourages companies to use the industry-specific SASB standards. Read Ms. Walter’s keynote address.

From left: Tashia Batstone, Joy Thomas, Elisse Walter

Reflections on sustainability reporting in Canada

Following the keynote presentation, senior business leaders participated in an open discussion on evolving investor expectations and the state of ESG reporting in Canada. Some points that emerged:

  • Sustainability is broader than only environmental issues, and is significant to a company's performance, particularly over the long term. Sustainability issues can have direct and indirect financial implications for companies.
  • As the board is responsible for the company's long-term direction, they must consider sustainability issues in their oversight of strategy as these issues tend to manifest themselves over the long term.
  • Considerable opportunity exists to bridge the expectations gap between companies and investors. Investors are looking for decision-useful ESG information while companies are trying to understand how investors use this information in investment decision making.
  • Sustainability must be looked at through a materiality lens. SASB standards offer industry-specific sustainability factors that are reasonably likely to have a material impact on a company's financial condition or operating performance.
  • Equally critical is transparency and disclosure with regard to reporting on ESG issues - for the efficient allocation of capital within the market.

This event was the latest in a series of CPA Canada events exploring the business and reporting implications of ESG issues.