This session was part of a two-part series on ESG metrics reporting FNEI co-hosted with Yale University. Read Session 1’s executive summary here.
The FiscalNote Executive Institute and Yale University co-hosted a virtual roundtable discussion, “From the Trenches: ESG Reporting Best Practices – Internal Processes and External Stakeholder Engagement,” with Cam Findley, David Hackett, and Marian Macindoe. The discussion, the second session of a two-part series on ESG metrics reporting, was facilitated by Paul Davies, a Partner at Latham & Watkins’s London office, and Dan Etsy, the Hillhouse Professor for Environmental Law and Policy at Yale University and the Co-Director of the Yale Initiative on Sustainable Finance on Oct. 14, 2020. YISF’s participation in the event was possible due to a generous grant from the ClimateWorks Foundation, and Ilmi Granoff, the Director of the Foundation’s Sustainable Finance Program, kicked off the discussion.
Mixed review of existing reporting mechanisms
There was some disagreement among the panelists on the efficacy of existing reporting mechanisms—like those of the Sustainable Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TFCD). One panelist noted that they were “fantastic,” but that not every reported metric made sense. An audience member suggested that the TCFD requirements lacked adequate methodology to compare different companies along the same metrics. A consequence of this inconsistency and misplaced emphasis is that, in the flurry of interest and enthusiasm, the truly material disclosures get lost.
These concerns are felt more strongly by multinational companies, which frequently have to report to different agencies in different countries. Sometimes this information is conflicting—but more often, it requires intense coordination to ensure consistency and to ensure that injurious statements in one report don’t harm operations elsewhere. But another panelist said that their company simply issued one report—and that they noted the different sustainable development goals (SDGs) for each country and developed plans to meet them.
Insight into report development
Another interesting part of the discussion focused on the selection and measurement of reporting matrices. Here, in part because of the identified inconsistency, companies didn’t have a single strategy—they used United Nations guidelines for sustainable development goals and other relevant reports. In arriving at these conclusions, they structured different tools for reporting, and educated intra-corporate working groups to develop playbooks and long-term strategies. Some panelists found success by involving stakeholders at an early stage of material assessment so that they could determine what to report and how to report it. Ultimately, the process was aided by creating a platform for due diligence and ensuring that ESG issues are “institutionalized” into the corporate framework.
ESG challenge case studies: Supply chains and litigation
The panelists identified two case studies for risk in the ESG context: litigation and supply chains. The participants broadly agreed that their companies faced unique challenges relating to litigation in the ESG context. One panelist expressed concern that, as companies report more, it invites “micromanagement” from interested parties and increases the risk that companies are accused of misreporting material information.
And for supply chains, one panelist noted that companies are increasingly being seen as responsible for the actions of their suppliers. This presents a concerning challenge, as managing human rights up the supply chain is difficult. It’s additionally complicated by the fact that getting suppliers to even report on ESG information, like human rights, is challenging. If ESG reporting is based on representations made by suppliers, that requires trust in what is being reported. One panelist noted that they were aware of a company that had sent drones to monitor working conditions instead of simply relying on supplier representations.
One of the most optimistic takeaways, however, was the increased opportunity that companies were able to find in ESG reporting. A participant noted that sustainability compliance used to be seen as a license-to-operate issue, not an opportunity—but that this perspective was rapidly changing. Companies with robust, and positive, ESG reporting are increasingly able to use their corporate commitments to sustainability and justice to attract talent and customers. This attraction extends beyond private customers, however, with business-to-business companies finding that other businesses are interested in ESG reporting of their partners. Another participant noted that positive ESG reporting also made companies more attractive investment opportunities—and that this, in turn, motivated the companies to come up with more holistic solutions that marry profit and sustainability.