January 30, 2023 Where next for ESG reporting?
Once seen as an afterthought or the preserve of ‘niche’ investments, ESG now sits in the heart of corporate reporting. This new emphasis on environmental, social and governance concerns largely reflects the widespread feeling that companies can no longer be seen to exist in isolation. Rather than seeing companies purely in terms of profitability; investors, customers and potential employees now take a more holistic view of an organisation’s overall impact.
Reflecting these changes in approach, in 2021 the Financial Reporting Council (FRC) issued its first briefing notices in respect of ESG reporting. Since that time, further updates have been issued covering areas such as climate related reporting and decision making, diversity and inclusion, and board diversity and effectiveness.
Now the FRC have issued a further update, revising the original 2021 ESG statement of intent and looking to build an ESG system “that is forward-looking and fit for purpose.” Recognising that environmental, social and governance concerns are constantly shifting in line with changing conditions and expectations, the revised statement demonstrates the FRC’s intent to deliver agile solutions which can enhance reporting and assurance.
To this end the statement lists eleven areas of focus for 2023. Some of these are targeted specifically at companies, whilst others create expectations of outlook and behaviour for actuaries and auditors. For example, later on this year the FRC intends to introduce a requirement for actuaries to take account of climate and other ESG related risks. Similarly, the FRC will be paying ‘particular attention’ to the way in which auditors assess climate-related risks as well as strengthening the need to demonstrate a clear link between financial statements and climate related disclosures within annual reports.
When it comes to companies, the forthcoming revision of the corporate governance code is intended to reflect the growing importance of ESG reporting and its impact on company boardroom decision making. Further guidance to be issued within the year will help boards to identify material risks and to analyse the impact of ESG concerns on future profitability. The link between investors and ESG reporting is also covered.
Commenting on the updated statement of intent Mark Babington, Director of Regulatory Standards at the FRC commented: “Improving transparency on climate and wider ESG risks and opportunities, and related governance activities and behaviours, is a key priority for our work, benefitting all those stakeholders who demand decision useful reporting which underpins effective decision making in capital markets.”