Over the past year, momentum has continued to grow towards ubiquitous reporting of non-financial (ESG) data and information.
Progress has been fast-paced.
ESG (Environmental, Social, and Governance) reporting standards have coalesced, trillions more in AUM are committed to ESG, and regulatory disclosure requirements are being implemented globally. With publicly listed companies leading the way, the number of companies producing ESG disclosures will continue to rise while companies simultaneously anticipate adhering to more stringent reporting requirements and data controls. As the leading global regulatory bodies get involved, ESG data will need to be maintained and audited with the same rigor as financial data disclosures. This effect will most immediately take hold in the companies that are publicly listed but is simultaneously rippling through private companies.
ESG has become a top priority of companies large and small, public and private.
Two years ago, many external pressures drove the increased adoption of ESG reporting. Larry Fink’s annual letters to CEOs played a significant role in the increasing focus on ESG. Since then, we have experienced the global economic shock of a pandemic and the increased power of social movements, among other systemic changes. In the wake of this economic recovery, investors and companies are building more sustainable companies prepared for future shocks. With this backdrop, ESG ascended to the boardroom. Companies need strong ESG oversight and performance to be well-positioned for sustainable long-term profits. With this increase in focus on ESG, we’ve seen a necessary increase in public reporting on ESG metrics. For example, SASB, one of the leading ESG reporting frameworks, was used by over 1,100 companies this year, up from only 119 companies in 2019. This exponential growth is in-line with the heightened focus on ESG performance across all industries and asset classes.
In private markets, however, there are less vocal proponents of the adoption of ESG frameworks. Despite this, there is still a great sense of urgency. Large private companies are publishing ESG reports like their public counterparts. These private companies are using many of the same reporting frameworks and are driven by similar incentives from all stakeholders — clients, shareholders, employees, and communities. As you move down the spectrum to smaller companies, the challenges of ESG reporting intensify with fewer resources to dedicate to the challenges that exist. As the emphasis on ESG disclosure spreads from public companies to private companies, these reporting functions will become more commonplace within companies earlier and earlier.
We are approaching the end of the “adoption” phase of ESG reporting and entering into a “validation” phase.
Adoption is high, with 95% of the S&P 500 and 70% of the Russell 1000 disclosing ESG metrics. While there is still room to grow, we have surpassed a critical mass. Pressure is growing on non-reporting companies to produce ESG reports out of fear of being left behind. The next phase of the ecosystem is “validation”. In this phase, all companies will create transparent internal processes to ensure all aspects of their ESG program are easily validated and audited. ESG reporting is nearly universal — public and large private companies are leading the movement to achieve this feat. The next step is creating dependable and defensible processes for ESG reporting. This process starts with clean, transparent, and efficient data collection.
Caesar is an ESG data management platform that simplifies data collection processes across various stages, including companies maturing from the “adoption” phase to the “validation” stage of ESG reporting.
If you’re interested in learning more about our platform, please reach out to our team!