Individual actions create an impact on our environment – be it long term or short. Big companies around the world especially have a responsibility to become sustainable and minimize their businesses’ impact on the environment.
In 2015, the United Nations created a road map to serve as a guide in determining the greatest issues we face universally, and how to solve them. The Sustainable Development Goals have been a topic of discussion for many years, each goal targets to either improve or mitigate a recurring global problem.
According to the Brundtland report -the first document that introduced the “sustainable development” concept – businesses are said to have a crucial role in managing impacts of populations in ecosystems, ecosystems resources, food security, and sustainable economics in order to decrease the pressure society places on the environment (World Commission for Environmental and Development, 1987).
Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.
In 2019, the Business Roundtable released a new statement of purpose for corporations and with that made a radical shift. For more than 20 years business leaders associated with the roundtable were convinced that companies’ managers and directors had the primary duty to serve shareholders – but the new statement now also lists others such as customers, employees, suppliers, as well as supporting communities, ensuring a fundamental commitment to all stakeholders (Business Roundtable 2019).
These executives are responding to the increased political and societal pressure that a company needs to do “good” while doing business, whether that means keeping carbon emissions low, waterways clear, or workers healthy.
Along with the growing interest in sustainable investments, the demand for information about corporate social responsibility (CSR) as well as firms’ environmental, social and governance (ESG) activities has risen, and investors are calling for comparable information.
In response to the demand for standardized reporting, numerous organizations offer voluntary reporting standards for ESG activities that aim to improve or harmonize reporting practices. The Sustainability Accounting Standards Board (SASB) aims to standardize the ways companies report on ESG criteria. The goal is to better inform investors, including determining which ESG issues companies should prioritize based on sector and industry. It develops concrete “industry-specific disclosure standards across financially material environmental, social and governance topics” that firms could use in SEC filings.
Likewise, the Global Reporting Initiative (GRI) attempts to help companies “communicate their impact on critical sustainability issues” by developing global standards for sustainability reporting. One of the newest players is the IFRS Foundation offering a global approach to sustainability reporting to address the proliferation of standards and standard setters (IFRS 2020).
However, to ensure long term and reliable reporting standards it is necessary for jurisdictions to issue consistent reporting mandates. So far in the United States, the SEC’s Investor Advisory Committee has called for requiring SEC registrants to provide information related to ESG issues that is material to investors when making investment and voting decisions (IAC 2020). In the European Union the Non-Financial Reporting Directive (NFRD 2014/95/EU) requires large companies and groups with more than 500 employees to provide “non-financial and diversity information” in the management report since 2017. The European Union is currently reviewing this directive and considering new ways to strengthen the mandate.
At Transformation we invest only in extraordinary profit situations where there’s at least a market return on equity. We combine strategic advisory services and project development to help family offices, sovereign funds, and private companies capture extraordinary opportunities at the inefficient frontiers of agriculture, energy, and water, integrating the latest technologies to achieve lasting profit while maximizing efficiency and impact and transforming the world.