Monday, June 24, 2024

Why ESG Disclosures Matter to Listed Companies

ESG aspects of listed companies in regards to their business activities are rapidly gaining the interest of stakeholders. Companies listed on the Saudi Stock Exchange (Tadawul) are making a coordinated effort to align with global ESG related principles, guidelines and voluntarily implement practices that address emerging challenges.

Companies integrate the ESG criteria into their culture, strategy, and business goals in order to make a tangible impact on societal and environmental issues. To achieve a competitive advantage in attracting and retaining investors, customers, employees, and other stakeholders, listed companies need support in making use of the ESG journey.

The Value of ESG Disclosures

ESG information provides insight into the quality of corporate management and helps investors to forecast company performance by providing a more complex view of the company. Comprehensive analysis of relevant ESG aspects has become a fundamental part of assessing the value of an investment, thus making ESG disclosures a must for companies in communicating ESG-related risks.

Strong performance across 3 pillars of ESG is indicative of business resilience. Listed companies must be able to demonstrate the progress they have made and the actions taken. This way the company will show that it is able to adapt to risk and protect the longevity of the environment and society in which it operates.

Communicating how sustainability initiatives are linked to the strategy, financial performance and valuation bring multiple benefits. A strong Corporate Governance on ESG factors correlates positively with financial performance.

ESG is worth making a priority. ESG reporting is evolving rapidly and growing in importance. Skilful and transparent management of these issues improves relationships with investors, clients, employees, and all stakeholders.

ESG Reporting

ESG reports show investors how companies mitigate risks and generate sustainable long-term financial returns. ESG reporting and disclosures help companies get access to capital markets and secure their license to operate. Strong ESG performance leads to preferential treatment from investors compared to companies whose environmental or other practices may pose a greater financial risk. Robust sustainability and ESG strategies increase business resilience and help improve overall company performance.

While demand for ESG-related information is high, the ability to meet those demands can be a challenge. ESG reporting standards often leave companies struggling to decide just how far they should go.

Checklist to guide company ESG reporting efforts:

1. Create a reporting framework that includes ESG issues, targets and initiatives, performance metrics, internal and external reporting standards.

2. Gauge the relative importance of sustainability issues for various stakeholders.

3. Work with ESG solution experts who can provide real-time data to map your ESG needs and provide insights to meet reporting needs that comply with stakeholders and industry standards.

4. Create an effective communication strategy to showcase your ESG management framework and reporting for external and internal stakeholders.

5. Report your ESG performance and show how it aligns with your business strategy.

6. Continually work on and improve upon your ESG performance by engaging with stakeholders and understanding emerging sustainability issues affecting your business.

Final Thoughts

Companies need to take action now on assessing ESG risks and opportunities for their businesses and on proper ESG disclosures, in order to be prepared for these changing demands and for the growing expectations of companies’ financial and non-financial reporting. ESG criteria is a popular way for investors to evaluate companies in which they might want to invest, as ESG criteria can guide investors to those companies that are at a lower risk due to their ESG practices.

ESG reporting encompasses both qualitative disclosures of topics as well as quantitative metrics used to measure a company’s performance against ESG risks, opportunities, and related strategies.

Effective ESG reporting balances the risk of not sharing enough, or inaccurate, information, against the costs of capturing and processing those metrics. The ESG reporting strategy should be flexible enough to meet today’s requirements while having an eye on what’s coming in the near future. Sager IR team understands that ESG reporting and metrics are an important indicator of a company’s overall health, and ESG reports can lay the foundation for a compelling story about the impact your company is making on the world.

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