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Environmental, Social, and Governance
What is ESG and why is it important?
Environmental, social, and governance ('ESG') refers to three central factors in measuring the impact of an organisation’s policies and processes. ESG covers a broad range of topics, from board and workforce diversity, to carbon emissions, to bribery and corruption. There is an increasing expectation from consumers, employees, shareholders, and governments for organisations to take greater responsibility for their impacts on society and the planet. role in society. There is also a belief that a company’s approach to managing ESG issues has substantial implications on its overall performance Thus, companies looking to build trust are paying more attention to how they manage and communicate their impacts on these issues. However, while some ESG requirements have become mandatory, ESG reporting remains voluntary in most countries. As a result, there are currently several voluntary ESG reporting frameworks that companies can implement order to track, measure and report ESG considerations.
For easy access to ESG material from across the OneTrust DataGuidance platform, use the tabs above. You will find the latest news and insight articles, as well as information regarding voluntary reporting frameworks and frequently asked questions. In addition, you can watch the OneTrust DataGuidance webinar below for an update on recent regulatory developments in the EU and Germany, specifically the German Corporate Due Diligence Act.
How Does OneTrust Help with ESG Challenges?
OneTrust's ESG Solution can help organisations develop a sustainable ESG program for managing and communicating about key ESG issues draw on existing frameworks, such as the Social Accountability Standards Board ('SASB'), The Task Force on Financial Related Disclosures ('TCFD'), and the Global Reporting Initiative ('GRI') to help guide and achieve your ESG goals.
The various tools within OneTrust ESG can support, measure, and track sustainable change with a range of functionalities, including:
- Identify ESG frameworks and metrics to use: OneTrust supports the most widely used frameworks and standards, as well as the option for custom templates and frameworks, allowing for easy management and reporting.
- Gather internal and third-party data on ESG metrics: OneTrust can help collate and simplify ESG data, reducing the complexity of creating webforms, developing templates, assigning tasks, and developing workflows and aggregation.
- Compare current enterprise ESG metrics to goals: Compare assessment responses and provide insights on gaps by comparing contrasting metrics created in the tool with your goals.
- Identify third-party risk: Collect data on third -parties and identify potential risks with OneTrust's tools and methodology.
- Easily report on ESG metrics and data: Leverage OneTrust's dashboards and exportable reports so your organisation can report on their ESG results.
A robust environmental, social, and governance solution can help build trust in your organisation.
Key OneTrust Resources
The British Embassy Bangkok announced, on 10 January 2023, that the Government of the United Kingdom and the Securities and Exchange Commission ('SEC') of Thailand had signed, on 9 January 2023, a new Memorandum of Understanding ('MoU') on financial services to promote inclusive economic growth and further strengthen their partnership in the fin
The Cyberspace Administration of China ('CAC') announced, on 17 November 2022, that it, along with four departments, had launched a pilot programme for digital, green, and coordinated transformation and development (dualisation and synergy).
The European Financial Reporting Advisory Group ('EFRAG') approved, on 15 November 2022, during the EFRAG Sustainability Reporting Board's meeting, the first set of draft European Sustainability Reporting Standards ('ESRS') to be submitted to the European Commission, subject to editorial review before their final issuance.
The White House released, on 10 November 2022, a factsheet on addressing greenhouse gas emissions and protecting the Federal Government's supply chains from climate-related financial risks.
The European Parliament ('the Parliament') announced, on 10 November 2022, the adoption, on the same date, of the proposal for a Directive as regards corporate sustainability reporting ('the Corporate Sustainability Reporting Directive'), with 525 votes in favour, 60 votes against, and 28 abstentions.
The 2022 United National Climate Change Conference ('COP27') commenced, on 6 November 2022, continuing until 18 November 2022, and is being hosted by Egypt in Sharm El-Sheikh.
The Federal Energy Reserve Commission ('FERC') issued, on 22 September 2022, a draft Notice of Proposed Rulemaking ('NOPR'), aiming to revise regulations to provide incentive-based rate treatments for the transmission of electric energy in interstate commerce, and the sale of electric energy at wholesale in interstate commerce by utilities for t
The Federal Office for Economic Affairs and Export Control ('BAFA') issued, on 17 August 2022, a guide on how to carry out a risk analysis within the meaning of the Supply Chain Due Diligence Act of 16 July 2021 ('LkSG').
The European Consumer Organisation ('BEUC') announced, on 29 August 2022, that it had published its reaction paper on the EU-New Zealand Trade Agreement. In particular, the reaction paper notes that the Trade Agreement includes clearer protections for personal data and safeguards for regulatory oversight of artificial intelligence ('AI').
The Spanish data protection authority ('AEPD') published, on 21 June 2022, its 2021 Social Responsibility Report, outlining the work carried out in line with the UN Sustainable Development Goals ('SDGs').
The Financial Services Agency ('FSA') released, on 12 July 2022, its Code of Conduct for ESG Evaluations and Data Providers and requested public comments on the same.
The European Parliament announced, on 6 July 2022, that it had rejected a motion to oppose the inclusion of nuclear and gas as environmentally sustainable economic activities in the European Commission's Complementary Climate Delegated
The Monetary Authority of Singapore ('MAS') launched, on 21 June 2022, its artificial intelligence ('AI') tool called 'NovA!'. In particular, the MAS noted that the tool assists financial institutions in assessing the sustainability performance of real estate loans, by harnessing AI to generate insights on financial risk.
The Monetary Authority of Singapore ('MAS') published, on 30 June 2022, its review paper on the implementation of the Fairness, Ethics, Accountability, and Transparency ('FEAT') principles in the use of artificial intelligence and machine learning ('AI/ML') by financial institutions.
The Abu Dhabi Global Market ('ADGM') announced, on 27 June 2022, that along with the international banking group, BNP Paribas, it had co-authored a white paper entitled 'UAE and the Energy Transition: Towards COP28'.
Organisations are increasingly focused on Environmental, Social, and Governance ('ESG') and sustainability in an effort to highlight non-financial considerations that have long-term impacts on shareholder and stakeholder value.
Environmental, social, and governance ('ESG') has become an area that organisations are increasingly expected to pay close attention towards in their business practices.
Environmental, social, and governance ('ESG') has become an area that organisations are increasingly expected to pay close attention towards in their business practices.
In 2015, the UK Government enacted new modern slavery legislation in the form of the Modern Slavery Act 2015 ('the MSA').
The Working Group II ('WGII') of the Intergovernmental Panel on Climate Change ('IPCC') is tasked with evaluating the vulnerability of socio-economic and natural systems to climate change, its beneficial and detrimental effects, and adaptation strategies.
The newest player in the Environmental, Social, and Governance ('ESG') standard-setting arena is the International Sustainability Standards Board ('ISSB'), established by the International Financial Reporting Standards Foundation ('IFRS') to become the first global standard-setting board.
With an increasing focus on Environmental, Social, and Governance ('ESG') across all sectors, businesses are required, and legally bound, to observe specific human rights and environmental due diligence obligations.
Environmental, social, and governance ('ESG') has become an area that organisations are increasingly expected to pay close attention towards in their business practices.
In recent years, the issue of creating a working environment complete with diversity and inclusion has been increasingly raised.
As discussed in the Insight article UK: COP26, carbon coins, and cockroaches - Can a new form of currency mitigate corporate liability climate risks?, the ways in which a company ensures that the appropriate disclosures are made
The last piece in the series exploring Environmental, Social, and Governance ('ESG') looks at the Governance ('G') of public and private institutions, including management and ownership structures, stakeholder relations, and oversight over executive positions, and how this plays a fundamental role in ensuring the inclusion of social and environm
The European Commission published, on 23 February 2022, its Proposal for a Directive on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 ('the Directive'), with ramifications for both EU and some non-EU companies and their impact on human rights and the environment through their operations or the operations within the
Steps to building a successful ESG and Sustainability Program
Phil Redman, ESG Offering Manager at OneTrust ESG, discusses key steps that organisations, and their Chief Sustainability Officers ('CSO') where designated, can take to build a successful ESG and Sustainability Program. Redman sets out the following five steps as pivotal to constructing an ESG and Sustainability Program that meets the expectations of stakeholders, both internal and external.
Step 1: Create your team and identify stakeholders
Create your team and identify the stakeholders. Starting with the CSO, this should be an individual who understands how the organisation functions but also has a genuine interest in sustainability. CSOs can maintain another role simultaneously, such as that of the Chief Information Security Officer. The CSO is a new and evolving role - approximately 130 CSOs in the world are known to be appointed.
As part of building out the team from the top down, create your own ESG governance structure, assign responsibilities, and set timelines. Senior leaders will set the pace and culture around sustainability in the company.
Secure approval to address key issues. Prioritise and negotiate what will make the program successful in its specific organisation.
Additional considerations include:
- What is your governance structure?
- Who is directly responsible and for what?
- What does the executive leadership look like?
- What are the expectations?
Educate your team around the different terminologies and practices.
Step 2: Conduct a materiality assessment
The variety of ESG frameworks can be overwhelming. To help with this, organisations are increasingly conducting a materiality assessment, which consists of a survey disseminated to any key stakeholders, including employers, senior leaders, partners, and customers, to formulate corporate priorities.
A materiality assessment can ask:
- What is most important?
- Where do we think we can have the biggest material impact if we focus on ESG components?
The materiality assessment evaluates the impacts of initiatives to help in the creation of a list of key initiatives across all areas of the business.
It is important to know what the numbers and metrics are in relation to relevant initiatives so that organisations can understand where the program can have the biggest material impact.
Software and tools are also crucial in the integration of information into one platform and visualising the ESG strategy.
Step 3: Collect, analyse, record, and review data
Organisations should collect and analyse performance data and integrate it with financial data to generate a benchmark of how the organisation is performing in relation to its goals and previous years.
The more data an organisation can collate on sustainability initiatives, the more accurate the ESG and sustainability program will be. The data must also be updated consistently and continually as often as their relevant activities take place, rather than left to an annual basis.
Understand the financial consequences of failing to meet targets, for example being accused of greenwashing and losing investment opportunities.
Additional considerations include:
- identifying ESG-related risks;
- identifying commercial or shared value creation opportunities;
- identifying priorities based on risk assessment and value creation opportunities;
- building business cases for investments; and
- creating an action plan and tasks.
Step 4: Set goals, define strategy and policies
Few organisations have set concrete goals for their initiatives, either internally or publicly.
In terms of the 'environmental' component of ESG, approximately 1800 organisations have set science-based targets according to the Science Based Targets initiative ('SBTi'). About one third of the Fortune 500 companies have set net-zero targets.
In terms of the 'social' component of ESG, setting goals in these areas has unique challenges in terms of acting on policies in a way that is fair and non-discriminatory throughout the entirety of the supply chain.
Additional considerations include:
- creating a multi-year strategy;
- launching or redesigning policies, processes, and products for impact;
- managing cross-functional groups or teams;
- producing reports for internal and external use (sustainability reports, filings to the Securities and Exchange Commission ('SEC'), legally mandated disclosures, or performance dashboards);
- engaging stakeholders in learning and feedback;
- identifying key commitments and disclosures; and
- creating policies for internal and third-party management.
Step 5: Reduce and remediate, leading change that transforms the business
How do you make real change in greenhouse gas emissions reductions and remediations? How do you build a case? Reductions are most important as the first actions to build initial success in the ESG program. New technology, scientific developments, policies, and investments can support reductions. Offsets can be addressed secondarily.
Consider a holistic approach. Communicate commitments internally and externally and monitor the entire supply and value chain to ensure reductions and remediations are extended into activities conducted by these parties. When selecting vendors, be careful to work with vendors who already create positive contributions to ESG issues, for example who are already net zero.
Additional considerations include:
- deciding on target areas for emission reductions;
- optimising with credits and other off-sets;
- building a business case for greenhouse gas reduction; and
- implementing change gradually so that it can be long-lasting.
How OneTrust Helps
OneTrust's ESG solution can help your organisation develop a sustainable ESG program that will seamlessly integrate into your wider compliance program. Draw on existing frameworks, such as the Social Accountability Standards Board (SASB), The Task Force on Financial Related Disclosures (TCFD), and the Global Reporting Initiative (GRI) to help guide and achieve your ESG goals.
The various tools within OneTrust ESG can support, measure, and track sustainable change with a range of functionalities, including:
- Identify ESG frameworks and metrics to use: OneTrust supports all frameworks and standards, as well as the option for custom templates and frameworks, allowing for easy management and reporting.
- Gather internal and third-party data on ESG metrics: OneTrust can help collate and simplify ESG data, reducing the complexity of creating webforms, developing templates, assigning tasks, and developing workflows and aggregation.
- Compare current enterprise ESG metrics to goals: Compare assessment responses and provide insights on gaps by contrasting metrics created in the tool with your goals.
- Identify third-party risk: Collect data on third-parties and identify potential risks with OneTrust's tools and methodology.
- Easily report on ESG metrics and data: Leverage OneTrust's dashboards and exportable reports so your organisation can report on their ESG results.
A robust environmental, social, and governance solution can help build trust in your organisation.
Phil Redman ESG Offering Manager at OneTrust ESG
[email protected]
OneTrust, Massachusetts
ESG Program Checklist
There is an increasing pressure from customers, employees, and investors to report on ESG data (carbon footprint, DEI metrics, etc.). Organizations are taking quick action by standing up ESG functions to support ESG and sustainability programs, strategies, reporting and metrics. The practitioners and SMEs implementing these solutions come from many backgrounds, and often this may be their first time in a full-time ESG role.
In tandem with starting an ESG program from the ground up and adjusting to evolving industry standards, your ESG-focused employees will need guidance on what makes a successful ESG and sustainability Reporting program. OneTrust has created methodologies like the ESG Enterprise Cycle and startup checklists that are built directly into our platform to help companies and practitioners of any experience and in any industry, to get started. Dive into our ESG program checklist below, which can also be downloaded here.
1. Set up Your Program:
- Creating your org chart
- Establish a governance structure
2. Assess Material Topics:
- Define materiality by key stakeholders (employees, customers, partners)
3. Understand key ESG impact Areas:
Environmental Impact Areas | Social Impact Areas | Governance Impact Areas |
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4. Select Initiatives and Standards:
- Which frameworks should I choose?
- What standards align best with my organisation’s goals?
- Research key impact areas and determine which are most relevant for your company to prioritise
5. Gather Metrics:
- Surveys Integrations Data uploads
6. Assess Risks and Opportunities:
- Evaluate ESG risks to stakeholders or program Identify opportunities for change
7. Take Internal and External Action:
- Create targets and goals Strategize and Implement action plans
- Identify key metric targets
- Track progress overtime
- Create a strategic document outlining individual tasks, DRIs and risk ownership across the organisation
8. Report and Visualise Results:
- Demonstrate that you value transparency by publishing your finding on the web through PDFs and dashboards.
ESG frameworks are systems for standardising the reporting and disclosure of ESG metrics. They are often voluntary but may be required in certain circumstances. Furthermore, the frameworks vary significantly in relation to the areas of focus and recommended metrics.
Below you will find key information regarding several voluntary ESG frameworks.
Issuing body
The Carbon Disclosure Project ('CDP') is a non-profit organisation that runs the global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts across the entirety of their supply chains.
Implementation guidance
CDP Climate Change 2022 Questionnaire
CDP Forests 2022 Questionnaire
CDP Water Security Questionnaire 2022
Full guidance materials are available with an account.
Additional information
The CDP outlines a global disclosure system for engagement in environmental issues worldwide. Its key areas of focus include climate, water, and forests. Companies can disclose in response to a request from an investor, a customer, or both via climate change, forests, and water security questionnaires.
CDP corporate questionnaires are divided into full and minimum versions. Minimum versions can be utilised when disclosing to that type of questionnaire for the first time or where the company is not disclosing to that questionnaire for the first time, but have an annual revenue of less than €/$250 million. Within the full questionnaire, sections cover, among other things, questions on the supply chain, banks program, the RE100 initiative, and the Net Zero Asset Managers initiative. Responses are to be submitted via the CDP's Online Response System.
CDP scores for the supply chain are globally recognised and based on CDP disclosures. Companies are scored from D to A. Scoring measures the comprehensiveness of disclosure, awareness, and management of environmental risks and best practices associated with environmental leadership, such as setting ambitious and meaningful targets. The CDP Scoring Introduction 2022, alongside methodologies, explains criteria for achieving A-list scores. Companies with an 'A List' score can be found here.
Issuing body
The Workforce Disclosure Initiative ('WDI') was issued by ShareAction. ShareAction is a UK registered charity which aims to ensure the financial system services environmental and social needs, shaping public policy where necessary. Its member organisations include Amnesty International, CAFOD, Christian Aid, Citizens UK, Unite the Union, WWF, Greenpeace, TSSA, Oxfam, Prospect, and University College Union.
Implementation Guidance
User Guide for the 2021 Online Reporting Platform
Additional information
The WDI aims to improve corporate transparency and accountability on workforce issues, and covers reporting related to human rights, formulating data on how companies manage workers across operations and supply chains. Signatories to the WDI must carry out public workforce disclosure or reporting to ensure policies and practices are aligned with international standards. WDI generates data through an annual survey and engagement programme, which can then be utilised by signatories to address workforce issues. ShareAction publicly issues reports, including targeted company guidance, accordingly. The WDI survey is aligned with other reporting frameworks, including Dow Jones Sustainability Index ('DJSI'), GRI, the UNGPs, and the SDGs.
The WDI investor coalition consists of 68 institutions and the WDI platform is run by ShareAction and partfunded by the UK Government's Foreign, Commonwealth and Development Office ('FCDO').
Issuing body
The Global Reporting Initiative ('GRI') is an independent and international organisation that aims to help businesses and other organisations take responsibility for their impacts, by providing them with the global common language to communicate those impacts. The GRI Secretariat is headquarter in Amsterdam, the Netherlands. The Global Sustainability Standards Board ('GSSB') is responsible for setting globally accepted standards for sustainability reporting.
Implementation guidance
A Short Introduction to the GRI Standards
Additional information
The GRI Standards are a modular system of interconnected standards for organisations to report their contributions towards sustainable development, divided into three series. Universal Standards apply to disclosures for all organisations. The Universal Standards are comprised of three documents (GRI 1, GRI 2, and GRI 3):
- Requirements and Principles for Using the GRI Standards - GRI 1 outlines the purposes, critical concepts, the use, and key principles of the Universal Standards;
- Disclosures about the Reporting Organization - GRI 2 considers general disclosures that should be made to determine the organisation's impacts, including an organisation's structure and reporting practices, activities and workers, governance, strategy, policies, practices, and stakeholder engagement; and
- Disclosures and Guidance about the Organization's Material Topics - GRI 3 explains how organisations can determine the most relevant material topics for its impact and relevant Sector Standards.
Sector Standards will apply to disclosures for over 40 specific sectors, prioritising developing standards for oil and gas, coal, agriculture, aquaculture, fishing, and mining. Currently, Sector Standards for Oil and Gas, as well as Coal are publicly available. Public exposure drafts for Agriculture, Aquaculture, and Fishing have undergone public consultation.
Topic Standards apply to disclosures relevant to a particular topic.
The revised Universal Standards 2021 are in effect from January 2023.
The GRI has reported that it is used by thousands of reporters in over 100 countries.
Issuing body
The Sustainability Accounting Standards Board ('SASB') Standards were issued by SASB which is now part of the Value Reporting Foundation ('VRF'), a global non-profit organisation. The VRF oversees the SASB Standards. The VRF has also issued Integrated Thinking Principles and the Integrated Reporting Framework, which can be used alongside the SASB Standards or independently.
Implementation guidance
Implementation Supplement - Greenhouse Gas Emissions
Implementation Supplement - Human Capital Bulletin
Additional information
The SASB Standards identify the subset of ESG issues most relevant to financial performance in each of the 77 industries covered. They are designed to help companies disclose financially-material sustainability information to investors. The SASB Standards contain disclosure topics, associated accounting metrics, technical protocols, and activity metrics for each industry.
Although reporters can highlight their respective industry to access the industry-specific standard, the SASB also provides Application Guidance which applies to all SASB Standards irrespective of industry.
Within its Application Guidance, the SASB recommends designing, implementing, and maintaining a system of governance around developing and disclosing sustainability information, including management involvement, board oversight, and internal control, that is substantially similar to what the organisation uses for financial reporting.
Issuing body
The Task Force on Climate-related Financial Disclosures ('TCFD') was established by the Financial Stability Board ('FSB'), a global body monitoring the global financial system, in order to improve and increase reporting of climate-related financial information. The TCFD was tasked with developing voluntary and consistent climate-related financial disclosures that would be useful to investors, lenders, and insurance underwriters in understanding material risks. The TCFD has 32 global members, which includes large banks, insurance companies, asset managers, pension funds, large non-financial companies, accounting and consulting firms, and credit rating agencies.
Implementation guidance
The TCFD Recommendations (2017)
In addition, the TCFD issues annual status reports and additional supporting guidance, which can be found here.
Additional information
As part of its mission, the TCFD issued four recommendations on climate-related financial disclosures which outline the TCFD framework for reporting climate-related financial information. The Recommendations apply to any organisation and are designed to solicit decision-useful, forward-looking information on financial impacts. Sector specific supplemental guidance is also available. There is a strong focus on risks and opportunities related to the transition to a lower-carbon economy.
The four recommendations cover governance, strategy, risk management, and metrics and targets.
Key governance disclosures include describing the board's oversight of climate-related risks and opportunities, as well as management's role in assessing and managing climate-related risks and opportunities.
Key strategy disclosures include describing:
- the climate-related risks and opportunities the organisation has identified over the short, medium, and long term;
- the impact of climate-related risks and opportunities on the organisation's businesses, strategy, and financial planning; and
- the resilience of the organisation's strategy, taking into consideration different climate-related scenarios, including a 2°C, or lower, scenario.
Key risk management disclosures include describing:
- the organisation's processes for identifying and assessing climate-related risks;
- the organisation's processes for managing climate-related risks; and
- how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management.
Key metrics and targets related disclosures include:
- disclosing the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process;
- disclosing Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas ('GHG') emissions, and the related risks; and
- describing the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.
The TCFD recommends that climate-related financial disclosures be provided in their mainstream, public annual financial filings.
Issuing body
The United Nations ('UN') Global Compact ('UNGC') aims to mobilise a global movement of sustainable companies and stakeholders.
Implementation guidance
Sustainable Development Goals ('SDGs')
Additional information
Companies can incorporate the Ten Principles of the UN Global Compact into their value system with the intention of achieving corporate sustainability. The Principles establish standards for human rights, labour, the environment, and anti-corruption, whereby businesses should ensure the following:
- Principle 1: Supporting and respecting the protection of internationally proclaimed human rights.
- Principle 2: Making sure that they are not complicit in human rights abuses.
- Principle 3: Upholding the freedom of association and the effective recognition of the right to collective bargaining.
- Principle 4: Eliminating of all forms of forced and compulsory labour;
- Principle 5: Effectively abolishing child labour;
- Principle 6: Eliminating discrimination in respect of employment and occupation;
- Principle 7: Supporting a precautionary approach to environmental challenges;
- Principle 8: Undertaking initiatives to promote greater environmental responsibility;
- Principle 9: Encouraging the development and diffusion of environmentally friendly technologies; and
- Principle 10: Working against corruption in all its forms, including extortion and bribery.
The Ten Principles are derived from the Universal Declaration of Human Rights, the International Labour Organisation's Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption.
The 17 SDGs comprise the following objectives:
- No poverty;
- Zero hunger;
- Good health and well-being;
- Quality education;
- Gender equality;
- Clean water and sanitation;
- Affordable and clean energy;
- Decent work and economic growth;
- Industry, innovation, and infrastructure;
- Reduced inequalities;
- Sustainable cities and communities;
- Responsible consumption and production;
- Climate action;
- Life below water;
- Life on land;
- Peace, justice, and strong institutions; and
- Partnerships for the goals.
Companies can solidify their commitment to the UNGC. According to latest statistics within the UNGC's brochure, titled One Global Compact: Accelerating and Scaling Global Collective Impact, more than 14,000 companies and 3,800 non-business signatories based in over 160 countries, and 69 Local Networks have committed to the UNGC.
Commitment to the UNGC, notably its Principles and SDGs, involves a commitment from the chief executive, or equivalent, with support from the Board. Participants must produce an annual Communication on Progress that outlines efforts to operate responsibly and support society, which may form part of an annual report or another public document.
Issuing body
The British Private Equity & Venture Capital Association ('BVCA') asked Sir David Walker to undertake an independent review of the adequacy of disclosure and transparency in private equity with a view to recommending a set of guidelines for conformity by the industry on a voluntary basis. The Guidelines for Disclosure and Transparency in Private Equity ('Walker Guidelines') were issued by the UK's Private Equity Reporting Group ('PERG'), in November 2007. The PERG was uniquely established in 2008 to monitor the private equity industry's voluntary compliance with the Walker Guidelines in response to the media scrutiny of the private equity industry in 2007.
Implementation guidance
PERG Announcement of Review of Walker Guidelines
PERG Q&A on the Walker Guidelines
Additional information
The Walker Guidelines apply exclusively to UK portfolio companies and private equity firms, outlining recommendations for enhanced disclosure by portfolio companies and private equity firms. Such enhanced disclosures should, among other things:
- Identify the private equity fund or funds that the company, senior executive, or advisers of the firm own;
- detail the composition of the board; and
- include a business review that conforms to Section 417 of the Companies Act 2006.
Overarchingly, the Walker Guidelines stipulate the following content within Chapter V:
- form and timing of public reporting by a portfolio company;
- data input by a portfolio company to the industry association;
- communication by a private equity firm;
- reporting to limited partners;
- data input by private equity firms to the industry association; and
- responsibility at a time of significant strategic change.
The reports should be publicly available on the company website, but can also be published within an annual report.
The Walker Guidelines specify how the BVCA should amend their oversight and initiatives in order to accommodate with the ensemble of recommendations for changes in disclosures.
The PERG issues annual reports on industry transparency and disclosure based upon the Walker Guidelines.
The PERG announced, in December 2021, that, in early 2022, the BVCA would commence a review of the Walker Guidelines to ensure they reflect emerging industry trends and future disclosure requirements. The PERG published interim recommendations to bolster the Walker Guidelines.
Issuing body
The World Economic Forum ('WEF') was established in 1971 as the international non-profit organisation for public-private cooperation, based in Geneva, Switzerland.
Implementation guidance
Additional information
The World Economic Forum ('WEF') Stakeholder Capitalism Metrics are a set of common metrics and disclosures on non-financial factors for investors and stakeholders in organisations. The metrics were created as part of a report, issued in September 2020, titled Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of sustainable Value Creation. The metrics intend to allow WEF's International Business Council ('IBC') and non-IBC companies to conduct reporting across all ESG components.
21 core (critically important, quantitative) and 34 expanded (wider value chain scope covering tangible impacts) metrics are grouped into following four main themes and corresponding subthemes:
- People: dignity and equality, health and wellbeing, and skills for the future;
- Planet: climate change, nature loss, and freshwater availability;
- Prosperity: employment and wealth generation, innovation of better products and services, and community and social vitality; and
- Principles of Governance: governing purpose, quality of governing body, stakeholder engagement, ethical behaviour, risk, and opportunity oversight.
Issuing body
During the 26th annual United Nations Climate Change Conference ('COP26') in 2021, the International Financial Reporting Standards Foundation ('IFRS') announced the formation of a new International Sustainability Standards Board ('ISSB'), which will consolidate both the Climate Disclosure Standards Board ('CDSB') and the Value Reporting Foundation ('VRF').
Implementation guidance
Additional information
The ISSB has published exposure drafts on two Sustainability Disclosure Standards, which synthesise elements of TCFD Recommendations and SASB Standards, tackle how companies can make disclosures of risks and opportunities which impact sustainability.
Final standards are set to be finalised in the second half of 2022.
ESG FAQs
General
1. What is ESG?
ESG stands for Environmental, Social, and Governance, which constitute its three main components. ESG can be described as a manner of judging a public or private body by aspects outside of their financial performance. Although the definitions of ESG vary, the key metrics of analysis are the three components featuring in its name. With global standards and frameworks emerging, both binding and non-binding in nature, organisations must consider how they can integrate ethical dimensions related to ESG into their business functions.
2. Why is ESG important?
Bringing an ESG program into an organisation facilitates its ability to identify, measure, and track the impact that its policies and processes have in environmental, social, and governance areas. ESG continues to move up organisations' agendas, with a growing number of stakeholders taking a keen interest, including employees, customers, and investors, meaning that ESG can impact their brand, revenue, company valuation, market perception, and risk management. The growing call for organisations around the world to lead the way in supporting pressing environmental, social, and governance issues has highlighted the need for consistent and regulated tracking and reporting as a means of demonstrating the effectiveness of ESG strategies on delivering progressive change.
3. What are the risks of ignoring ESG issues?
Issues related to ESG pose different potential risks if their real-world implications are ignored. These might include:
- operational risk;
- weather risk
- third-party risk;
- increased physical risks to safety;
- market risk;
- technology-related risk; and
- reputational risk, such as through 'greenwashing' practices, which can impact consumer trust and confidence.
4. What does ESG have to do with privacy and security? Where does privacy and ESG interact?
Privacy and data security both fall under the social component of ESG and discussions on data ethics. Among many other similar aspects, both privacy and ESG promote trust and transparency. Due to this overlap, organisations are starting to consider how privacy lives within a broader narrative related to corporate social responsibility. In reaction to this, some actors have begun incorporating compliance with the principles related to protection of personal data and the right to privacy as part of their ESG programs, taking a more holistic and ethics-based approach as opposed to a strictly privacy-driven regulatory compliance approach.
5. Which business activities and corporate operations fall under which of the three ESG components?
There are various ways to categorise business activities under the three components of ESG. We propose the following categorisation:
Environmental
- Greenhouse gases ('GHG') emissions;
- Energy management;
- Water management; and
- Waste and hazardous materials
Social Capital
- Human rights and community relations;
- Consumer privacy;
- Dara security; and
- Product quality and safety
Human Capital
- Labour practices;
- Employee health and safety;
- Employee engagement; and
- Diversity and inclusionHuman rights and community relations;
Business Model
- Product lifecycle management
- Business model resilience
- Supply chain management
- Materials sourcing disclosures
6. What is the difference between ESG, CSR, and impact investing?
ESG, Corporate Social Responsibility ('CSR'), impact investing, and sustainability are terms and concepts often used in discussions around ESG. These concepts are interlinked and overlap. CSR, however, can be seen as a precursor to ESG, with similar aspects of a business's impact on society being considered, whereas ESG builds further metrics for businesses to quantify their impact in the three areas of interest. Impact investing involves purposefully selecting investments which will have a positive impact on the wider society.
ESG reporting, scores, funds, and investing
7. What are the ESG standards and frameworks? Are they mandatory?
ESG standards and frameworks can relate to various issues under each of the three components, Environmental, Social, and Governance. Most standards are global and voluntary, and many provide a framework for organisations to formulate reports which set out data related to sustainable development and how it has been supported over a given period, often the previous year. Standards can include metrics, methodology, and criteria for how the reports can be drafted and disseminated. Standard-setting bodies may issue scores related to how the organisation has met the various criteria in relation to their peers.
8. Is there one single, harmonised global ESG reporting framework I can use?
There is no single ESG framework that applies universally. The selection of an appropriate ESG framework will depend on intra- and extra-organisational factors, such as an organisation's sector, size, jurisdictional reach, sustainability goals, customer and stakeholder expectations, and resources. The International Financial Reporting Standards Foundation ('IFRS') published two documents in relation to their project on sustainability-related reporting. The second is an Exposure Draft that outlines proposed targeted amendments to the IFRS Foundation Constitution to accommodate an International Sustainability Standards Board ('ISSB') to unify the multitude of global sustainability standards and reporting frameworks.
9. Are there any mandatory requirements for reporting?
Most standards and frameworks, particularly regarding ESG reporting, are currently on a voluntary basis. For a global overview over ESG reporting, scores, funds, and investing, you may wish to access our Insight article International: Voluntary ESG reporting frameworks and their issuing bodies. However, some binding regulations in various stages of implementation exist, which cover aspects of ESG-related activities. Some supply chain due diligence regulations, for example, ask companies to report on ESG impacts within their extended value chains.
10. What are ESG reporting metrics?
ESG reporting standards and frameworks are made up of metrics, which can be used when formulating ESG reports and deciding areas to be covered within such reports.
11. What is an ESG score?
Scores intend to provide an impartial rating of the extent to which an organisation contributes to ESG issues. Different standards and frameworks calculate scores according to various methodologies and scales. Scores are based upon internal practices and performance under the chosen methodologies.
12. Who conducts ESG scoring for companies?
Standard-setting bodies act as independent adjudicators tasked with calculating scores in reference to their specific methodology and metrics. Therefore, scores and their connotations may differ depending on the standard or framework employed.
ESG and sustainability programs
13. What is an ESG and sustainability program?
Organisations may establish an ESG and sustainability program which addresses their ESG risks, opportunities and goals, and how these will be implemented, monitored, maintained, and updated. For an in-depth analysis, you may wish to access our Insight article International: Steps to building a successful ESG and Sustainability Program, which discusses key steps that organisations, and their Chief Sustainability Officers ('CSO') where designated, can take to build a successful ESG and Sustainability Program that meets the expectations of stakeholders, both internal and external.
