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Increased ESG disclosure requirements drive non-financial reporting best practices

The latest trend report on ESG (Environmental, Social, Governance) reporting released by the World Business Council for Sustainable Development (WBCSD) and the Climate Disclosure Standards Board (CDSB) reveals that over the past 10 years the number of voluntary reporting requirements around the world has increased from under 10 to 182, with 80% being issued by non-governmental organizations[1]. This clearly underlines that ESG issues are rising in importance for the finance and business community. Companies need to face demands from a variety of stakeholders to include meaningful sustainability information in mainstream annual reports. Both the Task Force on Climate-related Financial Disclosures and the European Union’s Non-Financial Reporting Directive have directed non-financial disclosure to the annual report, ensuring that sustainability sits alongside and within the company and investment strategy, requiring reporting on results and risks.

How are businesses and financial players in Luxembourg encouraged to use extra-financial reporting?

In Luxembourg, we address growing non-financial transparency requirements from private and institutional stakeholders on different levels. In the financial industry, more and more initiatives invite organizations to report on ESG performance, with the ambition to facilitate the connection between sustainable companies and investors and to support sustainability transparency principles.

For instance, the Luxembourg Stock Exchange recently introduced to its Principles of Corporate Governance a new principle on Corporate Social Responsibility (CSR) applicable to all Luxembourg companies listed on the market. Principle 9 requests the company to “define its corporate social responsibility policy with respect, including to it those responsibilities related to social and environmental aspects. It shall set out the measures taken for its implementation of that policy and shall provide for these to be adequately published”. 

Transparency and disclosure are also key requirements in the LuxFLAG labelling framework. For its ESG label, LuxFLAG requires investment funds to integrate amongst others a strong ESG policy throughout the entire investment process and to describe the analyses performed up to the end selection of the portfolio. The invested portfolio needs to be screened through a comprehensive approach analyzing companies e.g. based on sustainability reports, CSR ratings, benchmark GHG exposures, NGO reports. The adherence to voluntary market practice standards helps strengthen credibility. 

How can investors track companies’ ESG credentials?

The ESG report is one tool which can help investors gain a clear understanding of a company’s ESG performance as well as progress over time. The benefits to disclose on ESG performance cover a wide range:

  1. Evaluate and monitor ESG progress ;

  2. Strengthen internal procedures and build ESG capacity ;

  3. Attract and retain long-term investors ;

  4. Disclose and market ESG performance for staff, clients, shareholders and regulators ;

  5. Meet growing transparency requirements

Is there a common standard for reporting on ESG?

The corporate reporting landscape is becoming increasingly complex and there is no universal standard yet. Different countries and organizations are introducing new standards and frameworks which often overlap. In addition, stakeholder groups are asking different information in various formats. To answer to the growing non-financial transparency requirements, most of Financial Services companies report on ESG performance and progress aligned with international standards and initiatives which offer ESG reporting guidance to the ever-increasing amount of ESG information. 

Some of the most common standards used include: the UNPRI - The Principle for Responsible Investment (PRI) where signatories are required to report each year publicly on their responsible investment activities such as organizational overview, ESG strategy and governance, ESG products, verification processes and reporting contact; the Global Reporting Initiative (GRI) which is the most widely used reporting tool[2] provides sector guidance for all reporting organizations in the financial services sector, enabling them to measure and report their sustainability performance[3]; the CDP (formerly the Carbon Disclosure Project) supports companies and cities to disclose the environmental impact of major corporations. In 2016, 5,759 companies have responded to CDP’s climate change and supply chain reports.

Through the use of international reporting standards, information reported once can be used several times to comply with different frameworks or communicate with various audiences. They help guide reporters and upgrade the quality and relevance of disclosures in line with investor needs.

What are critical factors to do efficient and comprehensive ESG reporting?

For us, whichever ESG reporting standard is used, there are three critical success criteria common across all organizations which impact the ESG reporting journey: a commitment to measure and improve operational process, a commitment to engage stakeholders and a commitment to leverage across the value chain. These commitments require most of the time a prior phase of awareness of ESG risks and opportunities as well as ESG capacity building from the management.

How will the future of ESG reporting look like?

The next challenge is to harmonize ESG understanding, frameworks and reporting. With the recommendations by the High-level Expert Group on Sustainable Finance and an action plan to build a European sustainable finance strategy, the European Commission launched an EU-wide ESG harmonization initiative. The first step is expected this May with the proposal of a European regulation regarding a taxonomy in order to establish a common sustainability language and to upgrade disclosure rules to make sustainability risks fully transparent.

Author :

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Stéphanie Deltenre, Managing Partner, CCD Partners Sàrl I GRI Standards Certified Trainer in Luxemburg, France & Morocco

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[1] Insights from the Reporting Exchange: ESG reporting trends (WBSCD, CDSB, 2018)

[2] In 2017, 93% of the world’s largest 250 corporations report on their sustainability performance (WBCSD 2017 Report)

[3] GRI reporting for Financial Services sector supplements (FSSS) covers key sector-specific issues and indicators e.g. product portfolio, audits to assess the implementation of ESG policies or active ownership

About CDD Partners 

CCD Partners is an advisory firm specialized in responsible investment & Shared Value Creation. We assist corporations, public institutions & policy makers from EMEA region. We are experts in GRI & UNPRI reporting standards and are the largest GRI Certified Training Partners in the francophone countries. In Luxembourg, we are National Institute for Sustainable Development and Corporate Social Responsibility (INDR) expert-verificator and members of Luxflag & IMS. We have deployed solutions which focus on: ESG Due diligence, Sustainability Reporting & monitoring services, aligned on international standards and requirements.

Learn more:

If you would like to learn more about this topic, we invite you to get in touch with us for customized training courses or to sign up to our upcoming GRI Standards Certified Training Courses:

  • Luxembourg: 7 & 8th June 2018

  • Casablanca: 28 & 29th May 2018

  • Paris: 14 & 15th June 2018

More information and registration: www.ccdpartners.net

If you would like to write a contribution as Associate member, please send a mail to communications@luxflag.org 

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