Preparing for enhanced disclosures: Highlights from Insightia's ESG 2023 report
The past year saw a number of changes in the way corporations across the globe are expected to report on their ESG data. From the passing of the E.U.'s Corporate Sustainability Reporting Directive (CSRD) to the SEC's proposed climate disclosure rule (anticipated to be finalized in April 2024), many organizations will soon be required to report on their Scope 1 and 2 emissions.
However, many are looking to get ahead of the curve, with 63% of the 500 largest U.S. public companies now voluntarily reporting on Scope 3 emissions, according to a new report from Insightia, a Diligent brand.
The report, produced in association with Vinson & Elkins, explores the trend toward greater accountability on a global scale, with regulators, standard setters and investors calling for mandatory Scope 3 reporting.
“Regulatory developments are set to revolutionize how companies globally are held accountable for their ESG policies and practices,” says Josh Black, editor-in-chief at Insightia. “With a myriad of new requirements to juggle, it’s increasingly important for leaders to be proactive in addressing ESG-related risks and opportunities. This is especially true for those in high-risk sectors such as energy and utilities.”
Read on for more highlights from the report.
Scope 3 reporting is no longer just a bonus
Emissions-intensive sectors in particular are facing mounting pressure to enhance their net-zero commitments.
Climate change shareholder proposals in U.S. energy sectors won 32.4% average support in the first five months of 2023, while proposals for the aerospace and defense sectors garnered slightly more, at 36.7% support.
At the same time, U.S. issuers are proactively preparing for Scope 3 reporting. As previously mentioned, roughly two-thirds of the 500 largest U.S. public companies currently report Scope 3 emissions on a voluntary basis — a sign that this may soon become the norm, rather than "extra credit."
Issuers face pressure to enhance ESG disclosures
While the average support for shareholder proposals related to environmental and social measures has fallen over the last two years, the number of proposals that pass remains elevated.
Last year, 26 such proposals won majority support at S&P 500 companies, compared to 18 and 30 in 2020 and 2021, respectively.
ESG metrics are also increasingly tied to executive compensation. According to the report, 73% of the S&P 500 tied executive compensation to ESG performance in 2021, an increase from 66% in 2020.
ESG activism is losing hedge fund favor
Due to rising inflation, many traditional activist hedge funds have placed ESG activism on the backburner.
Just 3.3% of environmental demands and 7.4% social demands have been at least partially successful so far in 2023, compared to 5.7% and 13.9%, respectively, in the same period a year prior.
The future of ESG: Robust reporting and enhanced disclosures
These trends and statistics make one thing clear: with new regulations continuing to evolve, companies can expect to disclose even more of their ESG data than they ever have before.
"Indeed, the direction of travel for ESG is likely to be more disclosure and greater uniformity," Black predicts.
In order to remain competitive, businesses will need clear and consistent insights into their climate performance, as well as benchmarking capabilities that allow them to optimize shareholder engagement.
To learn more about ESG trends and what companies can do to prepare for enhanced disclosures, download Insightia's full ESG 2023 report.
