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ESG and Stakeholders: Key Trends, Challenges, and Reporting Consequences
What will the year 2022 look like for today's CFOs?
ESG
Environmental, social, and governance (ESG) challenges continue to improve on corporate executives' priority lists. Companies that stress ESG initiatives as a business necessity will lead the way in the eyes of stakeholders as a window into future business performance. As ESG continues to be a keystone of board and investor focus, effective shareholder engagement is as vital as ever, and as difficult as ever, for ensuring that firms have the external support they need to progress their long-term plan.
Failure to manage shareholder involvement may result in a firm losing majority support on a shareholder proposal, low director support, or even losing a proxy conflict. Every year, the position of the CFO evolves. The year 2022 appears to be full of new difficulties for hardworking CFOs. The never-ending battle for high-level CFOs will get harsher.
In addition, ESG metric reporting will continue to climb in 2022. Organizations must make a true commitment, and commercial openness is vital. According to a survey, 80 percent of corporations globally report on sustainability, with the United States leading the way.
ESG Reporting – Challenges
The pressure on business boards and government officials to improve their ESG abilities will increase.
Corporate boards and government officials will face increasing pressure in 2022 to demonstrate that they are fully prepared to comprehend and supervise ESG concerns ranging from climate change to human rights to societal unrest.
The expanded breadth of corporate board obligations necessitates greater concentration and time commitment from board members to fulfill their fiduciary duties. Pressure on boards to strengthen their ESG credentials is expected to increase as investors want greater responsibility from the top and a greater emphasis on sustainability.
Government and business leaders are under increasing pressure to improve their ESG abilities and incorporate sustainability into their policy and planning efforts. They will include adaptation and resilience measures in their investment plans as the economic effect of climate change grows. In 2021, the United States alone saw 20 hurricanes, each with losses of more than $1 billion.
New legislation and reporting requirements will necessitate more credible business disclosures.
While several corporations adopted sustainability targets and disclosed ESG-related data in 2021, investors, regulators, and the public are examining corporate sustainability initiatives and pointing out what they view as greenwashing. Much of this mistrust stems from fears that firms are utilizing disclosures and sustainability-related labeling on products and services as a marketing tactic to look more aggressive on these issues than they are.
To date, consensus on key measures and reporting frameworks for environmental variables has developed swiftly more than agreement on key metrics and reporting frameworks for social aspects. However, by 2022, there may be greater convergence on the data, metrics, and reporting standards most important to social concerns, as well as increased effort to ensure that these metrics reflect effect rather than merely inputs.
In 2022, new global ESG-related standards will continue to emerge, while global standard-setting bodies such as the newly formed International Sustainability Standards Board can help address what may be the most significant impediment to accountability: the lack of a common baseline for disclosure standards that are consistent across jurisdictions and industries.
Governments and businesses will face the difficulty of translating net-zero commitments into immediate action.
The number of governments and significant corporations stating objectives to achieve net-zero emissions by 2050 increased dramatically in 2021. These promises, however, frequently lacked interim emission reduction objectives or strategies to reduce indirect emissions that occur throughout the supply chain. We predict that by 2022, pressure from shareholders and other stakeholders will be increasing on those firms to produce meaningful, near-term strategies and begin to act to address emissions across the whole value chain.
With such large risks, investors are likely to demand more than just long-term climate promises. We believe that governments and businesses will need to offer genuine, attainable near-term milestones on their road to decarbonization. Beyond the established focus on emission reductions, the spotlight will shift to how organizations manage physical climate risk exposure, including the availability and/or adequacy of adaptation and resiliency planning.
ESG Reporting's Future
This year, regulators will keep a closer eye on corporations. The ongoing push for ESG reporting will compel more businesses to act. Without exception, your responsibility as CFO is to have correct data at the click of a button. A professional data team can assist you in distinguishing between true data and "noise."
The function of a CFO will continue to expand into a techy-futuristic jack of all trades in the coming future. The struggle for talent will continue, with the added pressure of securing people with the necessary skill set. It's all about effectively processing data and understanding the broader picture.