LETTERS: The notion of environmental, social and governance (ESG) reporting has gained momentum among businesses these days, especially following the Covid-19 pandemic, with an attempt to espouse greater sustainability standards in line with the 3Ps — people, planet and profits.
Based on equality, prudence, security, inter-relatedness and inclusivity principles, as evidenced by literature, it is a dynamic journey.
In fact, 90 per cent of large corporations globally produce ESG reports. But, are corporations up to the mark?
Lately, ESG reports have faced the criticism of non-governmental organisations (NGOs) on the apparent "greenwashing" — unsubstantiated claims about environmental impacts.
Examples include sustainability reports with lustrous pictures of happy farmers or sunny orchards or contented babies. Just try visiting company websites.
Some companies have even won accolades for sustainability. The irony, the same companies can make headlines for ESG complicity.
An apparel company was one such entity, involved in the 2011 Rana Plaza mishap in Bangladesh. And a well-known and award-winning international bank is another.
Oddly, these companies' sustainability reports convey them as ESG beacons. Reporting problems are multi-factorial.
From inaccurate target-setting based on the companies' own goals, to non-transparent supply chains contributed by third-party outsourcing that makes tracing problematic, to lack of synergy with technologies like blockchain or artificial intelligence, to confounding information, like Levi's disclosure on how its 501 jeans will add 48.9g to marine sustainability (how will consumers interpret this?) — as well as reporting that primarily focuses on publicly traded United States and European companies.
There is an urgent need to streamline ESG reporting and validation through a multi-stakeholder approach. It is to ensure companies walk the talk and to distinguish reality from rhetoric.
It can also ensure that consumers, investors, NGOs and relevant stakeholders can objectively assess a company's adoption of ESG standards from the information provided in the report, without being deluded by complex information.
It needs validation as per consensus-based standards in financial reporting in compliance with stock exchange regulations as in the US.
Another plaguing issue is "complexity". ESG reporting tends to be "giant-sized", rather than "bite-sized" content that contains specialised language and one-size-fits-all categories, which essentially disregards the audience. Just visit any company's website.
The advent of new media may also desensitise the impact of ESG reports, with stakeholders opting for other information sources on social media. Companies need to connect with the new tech-savvy millennials.
It can be argued that ESG reporting are not ends to themselves, not about the more the merrier reporting, but ensuring the identified stakeholder's ability to read ESG reports — to enable business improvement, better decision-making and to aspire towards sustainability outcomes.
DR THANASEELEN RAJASAKRAN
Universiti Tunku Abdul Rahman
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times