By Grace Zhiwei Tan

Introduction: Defining Environment, Social and Governance Reporting

Environmental, Social and Governance (ESG) Reporting is a company’s disclosure of qualitative and quantitative data on its efforts and initiatives in areas related to (1) its impact on the environment and climate change, (2) the welfare and rights of its employees and the local communities in which it conducts its business, and (3) the company’s own governance and demonstration of its stewardship (Tocchini & Cafagna, 2021; TCFD, 2022; Horton, 2022; SGX, 2021).

How ESG Reporting is done: Standards and Frameworks

Over the last two decades, industry leaders and international bodies have convened forums and task forces that have devised global standards and frameworks for ESG reporting. Increasingly, companies are including ESG reporting alongside their traditional financial and income reporting to demonstrate their commitment towards ESG goals. According to McKinsey & Co, over 90% of S&P 500 companies publish ESG reports (Pérez et al., 2022).By and large, companies have the autonomy to choose disclosure frameworks relevant to their business.

Key disclosure standards and frameworks include the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-Related Financial Disclosures (TCFD), Global Reporting Initiative (GRI), and the United Nations Guiding Principles on Business and Human Rights (UNGPs).

While there is not one universally adopted ESG reporting framework (Tocchini & Cafagna, 2021), a recommended set of 21 core disclosure metrics were published in a White Paper at the 2020 World Economic Forum (WEF et al., 2020). Additionally, 33 stock exchanges around the world have introduced mandatory ESG listing requirements.

For example, the Singapore Stock Exchange (SGX), together with the Monetary Authority of Singapore (MAS), has just this month launched the ESGenome Disclosure Portal, an online platform where companies can make baseline disclosures on 27 core metrices, and voluntary disclosures across 3000 additional ESG metrices (MAS, 2022).

Why ESG reporting is important: A response to a call to action

The climate crisis confronting the world as well as an awakening across societies on the need to fundamentally respect human welfare and dignity has culminated in an unprecedented call to action for companies to put ESG at the core of their business (Nelson, 2022; Shift & Mazars LLP, 2015).

This call to action has been articulated by investors and consumers in several recent surveys: In an investor survey conducted by PricewaterhouseCoopers (PwC), close to 80% of investors responded that ESG is an important factor in their investment choices (PwC, 2021); and in a 2018 Nielsen consumer survey, an average of 80% of respondents across the X, Z and Millennial generations believed it was extremely important that companies help to improve the environment (Nielsen, 2018); and the 2021 Schneider Electric Singapore Study found that two-thirds of respondents articulated the need for companies to put the environment ahead of profits (Schneider Electric, 2021).

The Communicator’s role in ESG Reporting:

Greenwashing: Communicators have been complicit

Given the mounting pressure by consumers, activists and investors, some companies have been duplicitous when communicating their ESG efforts and have thus earned the label of Greenwashing. Greenpeace defines Greenwashing as a public relations tactic companies employ to create an image of being environmentally conscious without making any meaningful reduction to their environmental impact (Frangoul, 2022).

Greenwashing has been proven to be a perilous undertaking that when unveiled, serves to drag a company’s reputation through the mud (River, 2021). Yet communicators have been directly involved in providing false sustainability claims through campaigns, ads or on social media for their employers or clients (Anderson, 2022).

In a working paper by Harvard University and the Algorithmic Transparency Institute titled “Three Shades of Green(washing)”, social media is described as the “new frontier” of climate deception and misinformation. In particular, oil and gas companies, airlines and car manufacturers’ green communication has been disproportionate to their actual commitments to decarbonization which researchers argue is tantamount to Greenwashing (Supran, G & ATI, 2022).

ESG Reporting: The Communicator’s Tool of Honesty

PwC describes ESG reporting as a communication tool that serves to persuade sceptics of the sincerity of a company’s actions towards sustainability (PwC, 2020). This description underscores the atmosphere of mistrust that companies pursuing ESG goals are confronted with, doubtless caused by the climate of misinformation filling the ESG space. Research by consulting firm, Behavioral Insights Team, found that consumers are susceptible to Greenwashing (Wodak & Dutta-Powell, 2022); and Professor of Communications, Menno D.T. de Jong, from the University of Twente explains that one of the reasons why companies blatantly engage in Greenwashing is the difficulty of the man on the street in evaluating or disapproving a company’s green claims (Sengupta, 2022).

Public Relations accrediting bodies such as the Public Relations Society of America (PRSA), and Institute of Public Relations in Singapore prescribe honesty, truthfulness and accuracy as ethical values PR professionals should possess (PRSA, 2022; IPRS, 2022). Arguably, an ethical burden of responsibility rests on communicators to express their company’s ESG focus in an accurate way.

Consequently, ESG reporting presents a viable solution to the misinformation problem. Rather than using ESG as a PR tactic, communicators can leverage ESG reporting as a tool to communicate their company’s progress on ESG goals truthfully and in alignment with recommended industry standards and frameworks.

Leveraging ESG Reporting to build corporate reputation

ESG reporting is also an avenue for communicators to build their company’s corporate reputation by providing customers, investors, underwriters and lenders with an accurate picture of the risks facing their company given the disruptive changes that may be needed in the pursuit of decarbonization and other ESG goals (TCFD, 2017). For example, for oil and gas companies, moving towards the apex of sustainability takes time. Through ESG reports, an oil and gas company can update its stakeholders on its progress and the risks it faces on its balance sheet and to its profitability in converting its business to clean energy. This would serve to reduce backlash and criticisms, and build the company’s corporate reputation over the longer term (Johnston et al., 2022; Tocchini & Cafagna, 2021).

Additionally, given that mandatory baseline reporting requirements are still relatively low, companies have an opportunity to differentiate themselves and hold themselves to higher standards which would signal their level of commitment to ESG goals and add value to their corporate reputation.

One example is DBS Bank which has recently announced its decision to pursue net-zero emissions in its lending and investment portfolio by 2050. This is a promise the bank made, as part of the United Nations Environmental Program’s (UNEP) Net-Zero Banking Alliance, together with 150 global banks. Although this decision may come at the expense of profitability, it signals the bank’s ESG focus and builds its corporate reputation as a best-in-class financial institution that is aligned with global, industry-wide ESG commitments (Auto, 2022; UNEP, 2021).

Conclusion

Communicators have the privilege of keeping a pulse on external trends whilst being privy to the internal workings of a company. This unique position enables communicators to provide internal thought-leadership and engage management and employees alike on the need to put ESG at the core of the business; and manage the communication of this transformation externally to stakeholders in a structured and consistent way availed through ESG Reporting standards and frameworks to build corporate reputation over a longer term.