What is an ESG statement and how can family offices draft one?
An ESG statement is a report that contains a company’s disclosures on the impacts that their operations had on the various ESG factors mentioned earlier. The importance of ESG reporting can be inferred from the following reports from an EY survey from 2020:
- 98% of respondents evaluate non-financial performance based on corporate disclosures.
- 91% of investors said that non-financial performance has played a major role in their investments in the last 12 months.
- 75% of respondents said that they’d find value in the assurance of an organisation’s plan to tackle climate risks.
However, despite its rising importance, ESG reports are still non-financial disclosures and are loosely regulated. However, there exist multiple frameworks that define how an organisation’s ESG reports should be published. These most widely accepted ones are the Global Reporting Initiative(GRI), the Sustainability Accounting and Standards Board(SASB), and the International Integrated Reporting Council(IIRC).
Here is a basic overview of an ESG reporting workflow:
- Setting up a board – An ESG board will oversee all the ESG issues that are relevant to the operations of the family office and its revenue-generating capabilities. It will be the job of the board to identify the risks and opportunities that these issues might present and how they can be implemented into the family office’s overall ESG strategy.
- Setting up an ESG working group – The working group’s function is to identify and report on the relevant internal data sources as determined by the board.
- Selecting a suitable ESG reporting framework – The framework will set a clear boundary on what to include and what to omit from the final ESG report.
- Performing a materiality assessment – A materiality assessment can be used to identify the ESG issues that are relevant to the family office and its stakeholders. Material assessments can be performed internally by the senior employees or externally by the stakeholders.
- Preparing the report – The final ESG report must be transparent and auditable and the goals presented in the report must be specific, measurable, achievable, realistic, and time-bound(SMART). It must also comply with the chosen reporting framework and fall within the boundaries defined by the board.
Producing an ESG statement is definitely a time-consuming process and involves heavy data processing and analytics and is, therefore, prone to human error. However, modern ESG software is designed to automate much of this workflow without the need for complex integration with existing systems.