With more companies publishing ESG reports that are similar but also different than traditional annual reports it is worth looking at a few key articles on the growing trend. Why is this relevant to an energy focused site like this one? Well ESG is going to be common across most every sector of investing, but the stakes are highest for energy companies. A core focus of ESG reporting is on emissions and overall environmental impact. Energy companies are either painting a clear target on their backs with these new reports or are productively informing their investors and customers of the reality of the trade offs involved in any industrial activity.
Which of these outcomes arises will depend on the sophistication and objectivity of the reader but also on the standards chosen to serve as a common basis for reporting ESG related metrics and disclosures. The move by the IFRS Foundation to begin a standards body of ESG as they do for accounting and financial standards for much of the world is a development worth watching.
Harvard Business Review published a great piece on this trend last week that is worth a read – https://hbr.org/2020/12/the-future-of-esg-is-accounting
A recent survey by McKinsey highlighted the desire by many investors and executives to reduce the number of ESG formats and approaches used by a growing cottage industry of NGO bodies trying to stamp their own framework on ESG reporting. More notable was the response by 82% of investors stating that ESG reporting should be “required” by law.
DLA Piper has published a “ESG Handbook” for directed at energy companies looking at how ESG will impact not only transparency and reporting but M&A activity, financing and more stating, “Clearly, in this emerging way of doing business, a company’s ability to manage its particular ESG risks (aka, risk mitigation) and take advantage of new market opportunities is driving value for its stakeholders.” It’s worth a read and does a good job of summarizing the many different directions where ESG will have an impact on the energy business.
What seems clear from these reports and many others is that ESG is not a passing trend and for the energy sector in particular it is a critical element of reporting that is only going to grow as a focus for investors and regulators.