COP26 has now come and gone, with its predictable sequence of world leaders issuing calls to action and backroom negotiations on setting various climate-related targets. Here are the main takeaways from our perspective:
- Not all is lost – there were some notable announcements, particularly on standards for disclosure of climate (and broader ESG) data, which collectively can change the game
- Moving from Why to How on climate will help build trust– some companies are readier than others – but most companies have a trust deficit, according to Edelman data
- Call to Action: Move now to improve your ESG reporting – or be left scrambling to catch up
COP26 in Glasgow was an important event in the ongoing battle against climate change. Like most observers, the Edelman ESG team agrees that in trying to avoid the perfect being the enemy of the good, the delegates ended up with an agreement that was much less than perfect, and not very good.
There were however some positive outcomes from the event:
- The establishment of the International Sustainability Standards Board (ISSB), under the aegis of the IFRS foundation, is a very notable breakthrough in creating a unifying standard for corporate disclosure of all material ESG investment factors
- The CFA Institute’s Disclosure Standard for ESG Investment Products also provides the first truly global, practitioner-led, voluntary standard for reducing greenwashing in the investment industry
- The establishment of the GANZ group of financial sector actors, as well as the ongoing growth in membership of the Net Zero Asset Owner Alliance, are both positive moves directionally for the finance sector to be held more accountable for its role in fighting climate change.
That was the good news. Here is where Edelman’s research shows where we need to take the conversation going forward:
ESG Trust remains low – companies need to work harder to earn it, even with all the positive announcements many of them made at COP26. The 2021 Edelman Trust Barometer, Special Report on Institutional Investors was issued the week after COP26 concluded, and revealed that
- 72% of investors globally do not believe companies will meet their overall ESG commitments
- 91% percent of investors expect their investee companies to issue net-zero pledges
- But 79% of investors do not believe companies are not effectively executing on their net-zero commitments
A call to action: improve your reporting to (re)build trust
As the saying goes, transparency is one of the best disinfectants around. Despite some positive moves and many announcements at COP26, the trust gap between companies and their investors remains vast. Here are three things that the Edelman ESG team recommends companies consider:
- Ensure your ESG reporting is best-in-class; not just a slightly edited version of your CSR report. ESG data, particularly on climate, should be reported accurately and in a timely manner to help set investor expectations on transparency
- Develop an ESG investor relations strategy: the days when CFOs and IR executives could say they never get an ESG question are behind us; ESG should be integral to investor communication strategy
- Engage via specific investor ESG touchpoints: ESG themed capital market days can help give your investor audience a focused lens to look through all your material ESG issues, and avoid the trap of relying on too many ‘nice’ anecdotes from your CSR report when asked for ESG updates.