The Financial Conduct Authority’s warning to index providers on the issue of greenwashing has further reinforced the need for IROs to ensure ESG communications are robust, accurate and stand up to scrutiny.
Although the concept of greenwashing – where companies pretend to be more environmentally friendly than they really are – will be familiar to many, it has been joined by other terms lately. These include green-hushing, where companies play down their ESG communications, and ‘greenbleaching’, where financial market participants choose not to claim ESG features of their products in order to avoid extra regulation.
In short, the issue of what – and what not – to communicate and how best to do so is becoming increasingly more fragile in a landscape where regulatory and shareholder focus on the topic of ESG continues to grow.
ESG reporting in action
For Lauren Swales, director of investor relations at global biopharmaceutical company AstraZeneca, ensuring that ESG reporting is robust and a fair reflection of activity is guided by company principles.
‘Aligned with our values to ‘follow the science’ and ‘do the right thing’, we take a rigorous and scientific approach to sustainability reporting,’ she comments. ‘We publish our sustainability report and sustainability data summary on our website annually toward the end of February and obtain an external review of our sustainability performance to validate that we use the same rigor and accuracy as we do with regulated reporting.
‘Bureau Veritas has provided independent external assurance for progress on all sustainability targets and all sustainability KPIs shown in the sustainability data summary, with details described in the sustainability letter of assurance published on our website. Assurance was also provided for select sustainability information in the 2022 annual report and is in accordance with the International Standard on Assurance Engagements (ISAE) 3000 and ISAE 3410 Assurance Engagements on Greenhouse Gas Statements.’
Striking the right balance
Given its strong regulatory and investor focus, IROs may be understandably concerned about the best ways to strike a balance between informing about ESG progress and communicating around areas where progress has fallen short of expectations.
Sharing her views on the topic, Swales says: ‘Our external role in IR is to effectively communicate the corporate strategy and financial performance to investors to achieve a fair valuation of the company’s performance. We have a responsibility to provide a fair and balanced view across our strategy, whether it’s financial, clinical or on sustainability.
‘The sustainability landscape is rapidly evolving, notably with the onslaught of new and updated regulation and legislation, and the challenge has been to keep up. I have found shareholders to be more understanding of ‘lagging’ targets, especially for targets that require collaboration across industries.
‘For example, we had a bold target to have our fleet 100 percent electric vehicles (EVs) by 2025; this target has been adapted and limited to certain countries, as the EV charging infrastructure is just not available – and won’t be available – in a number of the jurisdictions within which we operate. I would always suggest transparency and honesty as the best way forward.’
Given the increase in ESG scrutiny and regulation, is the practice of companies saying less about their activity one that is on the rise? Swales says that from AstraZeneca’s perspective, sustainability has been on the agenda since 2013, and its activity hasn’t changed, although she has observed an industry-wide shift in events.
‘We have continued our annual sustainability engagement event with shareholders – last held in March 2023 – and have plans for another event later this year, so no change with respect to our external communications,’ she says. ‘Incidentally, however, I have noticed a significant reduction in the number of ESG-focused conferences being hosted by banks. In 2021, we must have been involved in eight or so different ESG conferences. This number was halved in 2022 and 2023 to date.’
Navigating global differences
An obvious question is whether ESG regulation, both current and proposed, is fit for purpose in today’s multinational financial landscape. It is Swales’ view that regulation, with transparent and consistent methodologies, can only help provide confidence in sustainability metrics and strategies, but that the lack of global consistency can be a frustration.
‘It’s a shame that a global standard could not have been agreed to and aligned with, rather than the plethora of regulations we are currently facing,’ she comments. ‘We have multidisciplinary working groups that assess our current preparedness levels to comply with upcoming regulation and any new requirements.
‘These working groups are focused on the EU Corporate Sustainability Reporting Directive and its European Sustainability Reporting Standards (ESRS), the EU Corporate Sustainability Due Diligence Directive, the SEC Climate Change Disclosures and the International Sustainability Standards Board (ISSB) and its sustainability and climate-related disclosures. We have completed a detailed gap assessment between the latest drafts from the EU ESRS and our internal and external reporting, policies and standards.
‘This work will underpin further projects to address any new requirements alongside internal subject matter experts. Future planning will include similar gap assessments against the SEC and ISSB standards as soon as they are published, leveraging our current work and progress.’
The best way forward
So how can IROs best communicate on ESG matters and meet regulatory obligations while avoiding potential pitfalls over what, when and how they report their activity?
‘Companies and IROs should continue to focus on transparency and data integrity, ensuring accuracy,’ advises Swales. ‘They should prioritize regulatory requirements, starting with gap analyses of what they currently disclose and what is additionally being requested. Furthermore, they should triage those benchmarks and/or rating agencies most important to their company, rather than trying to respond to them all.
‘Sustainability is definitely a team sport. IROs should ensure they have built a good network internally to help with the upcoming requirements and ask shareholders for their feedback. In my experience, passionate sustainability investors are always happy to share their view on best practice. Finally, they should use the experience and insight of the IR network.’
