The Role of ESG Disclosures in Shaping Tomorrow’s Corporate World
- Ts. Raja Shazrin Shah
- Mar 28, 2024
- 3 min read
In a time where the urgency of addressing climate change and advancing sustainability surpasses mere discussion to become a central focus of global action the most recent Carrots & Sticks report that I read has been particularly enlightening. Published on 11 March 2024, this report explains the significant transformation in the world of global corporate governance, marking a noticeable shift towards the integration and prioritisation of ESG (Environmental, Social, Governance) policies. My role as a sustainability consultant, usually involved in navigating the complex interconnections among environmental regulation, biodiversity preservation, and the broader scope of corporate accountability, has been greatly enriched by the insights collected from this report. It provided me with a better understanding of the current state of sustainability disclosures and emphasised their critical role in catalysing meaningful progress towards our collective sustainability goals. This exploration into the report's findings sparked a keen motivation to go deeper into these themes and share my perspective on the key developments it outlines. Hence, it became the motivation for this edition of our newsletter, where I aim to discuss the implications of these shifts for businesses and the wider community in our journey towards a more sustainable and responsible global marketplace.
The post-2015 era has witnessed a pronounced growth in voluntary sustainability disclosure policies. While pre-2015, mandatory disclosures constituted 55.2% of the landscape, they now make up only 36%. This trend shows a broader movement towards the integration of ESG policies into corporate strategy, as evidenced by the steady adoption of the GRI Standards globally. Guided by GRI and Stellenbosch University Business School, with support from prestigious institutions like King’s College London and the University of Edinburgh, the Carrots & Sticks initiative provides an exhaustive analysis of over 2,400 policies across 132 countries, showcasing the exponential increase in sustainability policies since 2020.
Despite the proliferation of ESG and sustainability-related policies, challenges remain. The report outlines a crucial insight: voluntary policies, while widespread, often fall short in influencing private companies due to their lack of specificity and restrictive nature. It is herein that the root of future ESG strategies lies—achieving clarity and simplicity in policies to ensure effective corporate engagement and compliance. The emphasis on clear, jargon-free ESG policies cannot be overstated, especially when considering that 75% of the policies tracked do not meet this criterion.
Furthermore, the focus of these policies predominantly on SDGs such as Decent work and economic growth (SDG8), Responsible consumption and production (SDG12), and Good health and well-being (SDG3) highlights a polarisation in sustainability goals. It's noteworthy that SDGs like Partnership for Global Goals (SDG17) and Industry innovation and infrastructure (SDG9) are less addressed, indicating areas where future policy initiatives could make a substantial impact.
The Carrots & Sticks report highlights the effectiveness of disclosure policies ('sticks') in requiring corporate action, with companies perceiving these policies as significantly more business-restrictive than other sustainability measures. This perception is a double-edged sword; while it can drive compliance, it also underscores the necessity for 'carrots'—incentives such as ESG-linked grants and robust public/private partnerships—that encourage voluntary sustainability reporting and engagement.
The GRI Standards’ prominent role in sustainability reporting cannot be understated, now referenced or required in 259 policies of 85 countries. This stresses the importance of comprehensive, comparable reporting frameworks that enable businesses to transparently communicate their impacts and progress towards sustainability goals.
Looking ahead, the enhancement of the Carrots & Sticks database with new metrics, AI resources, and comparative frameworks is set to revolutionise how ESG policies are monitored and implemented. This evolution is crucial not only for effective policymaking but also for empowering businesses and their stakeholders with the clarity and guidance needed to navigate the complexities of sustainability reporting.
As we move ahead, the lessons learnt from the Carrots & Sticks report serve as a guide for the necessary alignment of private sector disclosures with the global sustainability agenda. The effectiveness of disclosures in driving significant change, the impending impact of ESG on business strategies, and the pathways to corporate resilience are illuminated with newfound clarity. This report not only validates the critical importance of ESG and sustainability in future-proofing businesses but also fuels my passion even more for campaigning sustainable practices that ensure the health of our planet and the prosperity of its inhabitants.
The journey towards sustainability is filled with challenges, yet it is replete with opportunities for innovation, collaboration, and transformation. As we navigate this path, the insights and data provided by initiatives like Carrots & Sticks are important. They not only inform our strategies and decisions but also remind us of the collective responsibility we share in shaping a sustainable future. The role of ESG disclosures in this journey is undeniably central, acting as the direction that guides businesses towards resilience, accountability, and ultimately, sustainability.
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