The Need for Increased ESG Transparency

• ESG transparency is still in its infancy

• Companies should be aware of the long-term value ESG transparency provides

• ESG experts and companies should work together in order to increase ESG transparency

The current issue with ESG transparency

Thanks to the rise of ESG investing, companies continue to focus on the importance of considering sustainability issues in their practices and operations. In fact, around 80% of CEOs believe in the importance of demonstrating a commitment to society through sustainability ratings, with other estimates showing how the amount of assets that rely on ESG information has grown by 34% over the years. Despite the increasing popularity of ESG, however, the reporting standards for ESG metrics are still in their infancy and ESG ratings between agencies tend to substantially diverge from one another- which makes it easier for companies to find the ratings that appear in their favor. This makes stakeholders skeptical of standard ESG disclosures if they aren’t backed by sufficient evidence and reporting, with 52% of investors finding it difficult to trust a companys’ actions regarding society and the environment. 

The importance of ESG transparency

In order to make ESG disclosures more trustworthy to stakeholders, the standards on ESG transparency reporting need to be established. ESG transparency describes the disclosure of ESG relevant metrics by company, industry, sector, etc. Companies benefit from increased ESG transparency, as companies with a strong ESG performance have demonstrated higher returns on their investments, lower risks and better resilience during climate crises. Plus, as ESG regulations continue to increase in proportion to the rise in its popularity, it is recommended for companies to continuously publish sustainability reports and publications so concerned investors are aware of how risk is mitigated and how they generate long-term sustainable financial returns through their operations. Otherwise, investors may overlook these companies as potential investments since it can be too risky for their portfolios. At Physis we promote transparency in sustainable investments by enabling investors to report sustainable data with just one click.

As for investors, it’ll help them become more aware of the companies they choose to invest in and the sustainability of their operations to better align their wealth with their values.

How companies and ESG experts can work together to increase transparency

There are multiple ways in which companies can expand on their ESG transparency reporting through collaboration with experts of ESG, such as working together to develop more balanced ESG strategies for companies to integrate within their reporting. Other reporting standards companies should try to establish for themselves include building an internal ESG-dedicated team to create reporting frameworks for ESG issues and to provide real-time data to map out their ESG needs. Continuously engaging with stakeholders to understand the sustainability issues affecting their business is also imperative to increase transparency. 

Through consistent communication and collaboration with companies, ESG experts can readily increase ESG transparency and make reporting standards easier for everyone involved.

At Physis, we offer investors a variety of ESG offerings and data to manage, track, and understand the impacts of your investments. We make it easy for you to start investing sustainably. Join us today!