ESG: The importance of reporting

Addressing ESG is step one; the next step is demonstrating to stakeholders the integrity and the level to which you are addressing it. A survey by PwC found that 79% of investors now feel ESG reporting is an important factor in their investment decisions. It is one thing to tackle ESG goals… now is the time to back up action with data.

Reporting on ESG is a vital part of a lender’s journey to sustainability, as it not only allows you to measure your impact and prove the work you are putting in, but it also protects customers from greenwashing. This is where businesses mislead (intentionally or unintentionally) customers into thinking they are more sustainable than they truly are.

Most importantly, reporting is being written into legislation, meaning that in the future, if you don’t report on it, you may find yourself being non-compliant. Businesses can work against targets to quantify their efforts by reporting. Saying that you are tackling climate change isn’t enough – you need to be able to prove it.

A chance to attract new customers

The general public wants to support brands that make an effort to have a positive impact on wider society. However, they also want to see how you are doing this and the results of the changes you make. By reporting on ESG, you put yourself ahead of the competition of those who cannot back up what they are doing with KPIs, thus making you a more attractive option. Being transparent makes your business more accessible and more trustworthy and improves your reputation.

A way to mitigate risk

Risks for secured lenders can be external. For example, an ongoing fuel shortage could impact the sales of petrol and diesel-powered cars, having a knock-on effect on captive lenders and banks. By reporting on ESG, you can evaluate these risks, proactively manage them, and reduce them.  

Non-compliance by not reporting is also a major risk in itself for an industry as heavily regulated as finance. ESG legislation is becoming more widespread, in-depth, and harder to ignore. Companies that fail to comply with ESG reporting could find themselves with large fines and penalties in the future as ESG legislation is set into place in the upcoming years.

What is the current legislation?

There have been some very recent developments in ESG reporting legislation. In 2023, the Corporate Sustainability Reporting Directive (CSRD) was announced, making reporting a requirement for a wide range of businesses in the European Union. This directive will come into effect in 2024 and is one of the biggest in the EU.

In California, the Climate Corporate Data Accountability Act will come into effect in 2026. This requires all organizations that do business in California, with an annual revenue above $1 billion, to disclose their Scope 1 and Scope 2 emissions publicly. In 2027, this will extend to Scope 3 emissions.

China is also looking to guide companies in their ESG strategy, although these are voluntary. A framework published by the China Enterprise Reform and Development Society (CERDS) helps companies to report ESG through a number of metrics. While this might not be law, it is the starting block that encourages businesses to be more ESG-conscious.

No matter what your reason for reporting, it is imperative that you begin to think about ensuring compliance going forward. With Solifi ESG Portfolio Strategist, reporting is made much easier with full lifecycle visibility, giving you an end-to-end view of customers, contracts and assets. All the data you need, at the click of a button.