ESG-Management-Trends-Challenges-for-Corporates

1. ESG MANAGEMENT TRENDS AND CHALLENGES FOR CORPORATES sganalytics.com 1 www.sganalytics.com ESG MANAGEMENT - TRENDS AND CHALLENGES FOR THE CORPORATES

2. Over the last decade, the far-reaching impact of ESG has significantly affected multiple stakeholder groups. Corporates at all scales, across geographies need to be consciously vigilant of not only their revenue channels, but also the ways and means of doing business. The evolution of the ESG space has been, by far, one of the most dynamic ones in the last decade. Forces such as the COVID-19 pandemic, extreme climate incidents, social revolutions, regulatory developments, investor interests, and technological innovation have created ripples in the economy, the direct repercussions of which are now on businesses. The recent developments have transformed the way corporates need to think of their ESG integration. We are going to explore a few ESG trends that have acted as transformative forces for the corporate sector. We have also considered the major challenges such trends have exposed in the way the corporate sector aligns itself to ESG norms and guidelines. 2 www.sganalytics.com ESG MANAGEMENT - TRENDS AND CHALLENGES FOR THE CORPORATES

3. ESG TRENDS Stakeholder Awareness: With the coming of the information age, corporates have to appease large stakeholder groups and ensure that their brand value resonates with the stakeholder values. Public sentiment has been found to influence stakeholder perceptions largely and has served as an efficient tool to identify potential greenwashing channels. Shift toward Elaborate Disclosure Practices: Non-financial data reporting via periodic reports have the potential to provide a holistic overview of the organization’s ESG performance. Such practices are nurtured by the sheer need for transparent data to enable informed decision making by multi- stakeholder groups. The evolution of disclosure guidelines for the ESG space has been gradual and myopic. It is most of the times focused on either one of the pillars of ESG or even at times, on specific material issues. To fill the void, reporting practices have developed in parallel, evolving from being data-centric to impact driven. Investor-driven Momentum: Corporate management of ESG risks is shaping investor perceptions. Investors are increasingly considering the integration of ESG practices as a mark of sustainable and profitable investments. ESG Risk assessments of holding companies are being drawn on ESG performances of corporates from publicly available information via first, second, and third-party sources. Hype and skepticism around ESG investment models in the last few years have gradually given way to a much better understanding of when and how ESG factors have exhibited pecuniary benefits. To complement such trends, international regulations complementing asset-level management of ESG factors, such as EU Taxonomy and SFDR, have come to the forefront. Such regulations seek to bring about greater levels of transparency at the asset level and minimize risks emerging from greenwashing practices. Recent Global Events: Global issues arising due to key environmental, social, and economic gaps are reshaping the way we consider resources and how businesses utilize them. The pandemic has highlighted the vulnerabilities across major operational aspects of businesses and has made business leaders ponder over their risk horizons. Besides the pandemic, in the past year, the world has witnessed major defining events such as the BLM Movement, Australian bushfires, and the unprecedented frequency of cyclones and heat waves. The above-mentioned incidents have shaped corporate strategies and have brought about a sense of wholesomeness in the way businesses perceive ESG integration. 3 www.sganalytics.com ESG MANAGEMENT - TRENDS AND CHALLENGES FOR THE CORPORATES

4. ESG TRENDS Technological Innovation: Technology has acted as a positive disruptor enabling creation of new concepts. The use of data analytics and visualization tools has revolutionized the way we consume ESG information to facilitate strategic decision-making. Access to Big Data via data providers and rating agencies has enabled multiple-stakeholder groups to perceive corporate performance. Stellar Performance of ESG Bonds: The global green bond supply is predicted to jump by 50% in 2021. As ESG risks are looming over businesses today, investors have resorted to new and better ways of indexing their holdings. Social bond issuance accounted for 30% of the sustainable finance bond market during 2020, compared to 5% during 2019. Commitments at International Forums: International agreements to foster sustainable development are not new. Various such collaborations and agreements concerning various ESG aspects such as climate change, human rights, and supply chain transparency have altered the extent to which corporates and investors consider ESG factors as key material topics. With country-level commitments for reaching net-zero footprint targets, the burden of ensuring its implementation has trickled down to the corporates. 4 www.sganalytics.com ESG MANAGEMENT - TRENDS AND CHALLENGES FOR THE CORPORATES

5. CHALLENGES Lack of Clarity on Disclosure Frameworks: While corporate enterprises now have the option to browse through multiple disclosure frameworks, there is still the confusion of identifying the best suitable disclosure framework for a business. Despite ensuring stellar operational practices that enhance ESG performance, corporate entities often fail to communicate the same via reflective disclosure reports. Responsible Partnerships and Associations: It is observed via various isolated incidences that corporates have come under the radar for failing to ensure ethical business practices by their associated partners and suppliers. Needless to say, it adds on to the responsibility of corporates to conduct due diligence on their supply chain partners and monitor their operations. Such focus on due diligence would enable them to proactively manage ESG risk factors arising from external associations, collaborations, and supplier engagements. Keeping up with Dynamic Regulatory Requirements: Mandatory regulatory requirements around climate change and other ESG factors are evolving at a fast pace. The dynamic nature of the evolution in regulatory requirements for ESG reporting brings about the need to demystify the new regulations within a short span of time and implement the same in data monitoring and reporting practices. Transparency in Data Reporting: Corporates also need to ensure that their data reporting practices are effective and aligned to industry-suited frameworks. Even the data reported at the ground level needs to be verified and monitored at source while ensuring derivations and calculations are in line with industry standards. Trends such as globalization and the internet revolution have fuelled the exposure of greenwashing practices. This demands corporates to conduct themselves ethically and bring about greater levels of transparency in voluntary and mandatory reporting channels. Being mindful of one’s ESG issues provides corporates with a strategic edge, which contributes to holistic decision- making. While globalization has helped businesses transcend boundaries, it has brought about global issues that corporates need to thrive on. Today, it is of utmost importance that they adopt a systematic approach in their business strategy and identify well-defined methods to develop holistic material boundaries. 5 www.sganalytics.com ESG MANAGEMENT - TRENDS AND CHALLENGES FOR THE CORPORATES

6. About the Authors PALLAVI SINGH AVP, ESG Solutioning AKHYATA PATTANAIK ESG - Analyst Research With over 12 years of experience in sustainability research, ESG and climate change management, Pallavi has worked with many leading corporates and international financial institutions spread across geographies to manage ESG related aspects starting from maturity assessment to roadmap development. She has provided consultancy in enterprise sustainability performance management and has led many projects involving technology enablement for corporates. With passion for sustainability fuelling her solution-oriented inputs, Akhyata is an inquisitive ESG professional with first-hand experience of working on a wide range of sustainability projects. Her areas of expertise have been developed working on varied engagements ranging from impact monitoring and assessment to providing insightful and bespoke ESG solutions for custom research projects. About SG Analytics SG Analytics is one of the leading research and analytics companies to offer data-centric research and contextual analytics services. With its presence in the US, the UK, Switzerland, and India, SG Analytics offers research and analytics services to its customers across the globe. Awarded the ‘Regional Best Employer’ by the World HRD Congress for 2016 and 2018, SG Analytics’ collegial atmosphere and knowledge-based ecosystem help to consistently meet and exceed customer expectations. Join the conversation New York | Seattle | Austin | London | Zurich | Pune | Hyderabad 6 www.sganalytics.com ESG MANAGEMENT - TRENDS AND CHALLENGES FOR THE CORPORATES