Time to Move Beyond Tick Box Approach to ESG

ESG 2.0 will provide investors with a common baseline for comparing sustainability performance, as well as more granular, industry- and company-specific data, according to a new discussion paper from Edison Group. James d’Ath, Director of ESG at the investment research and investor relations firm, said continued pressure from regulators, investors and customers would require corporates, including SMEs, to take a more holistic approach to addressing ESG risks and impacts than at present, where ‘tick box’-led compliance and greenwashing are prevalent. In the paper, d’Ath suggests standardised and mandatory sustainability reporting “will force corporate disclosures to become more credible” at the risk of losing public trust. Investor and consumer scepticism, partly driven my over-reliance on flawed ESG ratings and data, will need to be overcome by more granular and relevant information from corporates. As firms improve engagement with ESG concepts, “there will be more clarity as to which ESG metrics are relevant to specific markets, sectors and geographic areas,” he said. Characterising ESG 2.0 as an environment in which profit and purpose are given equal weight in assessing company performance, d’Ath predicted: “The companies that will be rewarded by investors tomorrow will be the ones who approach ESG holistically and plan out long-term strategies aligned to the business’s purpose and goals.”

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