ESG, climate change risk and disclosure

  • Before adopting a non-financial reporting framework, organisations should undertake a materiality review to determine the issues that are important to each stakeholder of an organisation.
  • Task Force on Climate-related Financial Disclosures disclosure requires companies to document their approach to risk management and how this considers climate change risk
  • An emerging issue related to non-financial reporting, with a focus on climate change, is the way in which companies participate in the public policy and political process.

Cityscape showing half in drought, half in green and prospering

Over the past several years, there has been increased focus on the environmental, social and governance (ESG) issues facing publicly listed companies. At the same time, there is a related push for companies to ensure they retain their ‘social licence’ in an environment of declining institutional trust. A key, often overlooked way in which companies can consolidate these trends into a strategic framework is the use of ‘sustainability’ or non-financial reporting. This article considers such reporting through the specific lens of climate change risk and the recent framework for reporting released by the Task force on Climate-related Financial Disclosures (TCFD).

ESG (ESG) reporting: In theory and practice

Simon Longstaff, executive director of the Ethics Centre notes that when corporations were first created in the 1800s, negative public sentiment was driven by concerns that directors would hide behind the ‘corporate veil’, and companies would not act in the long-term interests of their customers and society more broadly.1 Increasingly, investors and civil society see non-financial or ESG reporting as a key way of demonstrating that directors are fulfilling their obligation to act in the best long-term interests of the company. ESG reporting allows the company to show it is contributing to greater long-term shareholder value by retaining its social licence. Reporting on how the company is improving non-financial indicators by aligning its strategy with longer-term societal value creation facilitates this.

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