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Total Impact Disclosure: Driving Capital towards Sustainability

Friday, April 5, 2019

Sustainable Finance Series n.1/3

The European Commission adopted the Action Plan on Sustainable Finance in 2018 to redirect capital towards sustainable and green activities. Impact assessment and corporate transparency are two key elements to foster sustainable finance. Discover CSR Europe’s Total Impact Disclosure approach and read about Danone and Bridgestone good reporting practices.

 

In this new Sustainable Finance Series, CSR Europe will take you on a journey through the main challenges and opportunities linked to Europe’s transition towards a more sustainable financial system. Impact assessment and corporate transparency are two key elements to foster sustainable finance. By engaging investors on ESG performance, companies can leverage their sustainability strategy as an enabler of financial stability while catering to the growing demand for impact investment.

IMPACT ASSESSMENT AND TRANSPARENCY

Despite the challenges, companies can benefit from an effective approach to reporting on impact. CSR Europe’s Total Impact Disclosure translates into an opportunity to attract capitals; strengthen reputation; foster stakeholder collaboration; and ensure long-term value creation. Several studies (i.e. Bruegel, 2018; BCG, 2017 – see image below) also confirm that companies that perform well in material ESG issues have a real competitive advantage compared to others, and experience superior financial results.

Figure 1: Margin premiums linked to strong performance in ESG Topics

Our Members’ Best Practices to ensure Sustainable Finance

Examples of good reporting practices amongst CSR Europe’s members are offered by Danone and Bridgestone:

- Danone is committed to improving its social impact assessment. It partnered up with various stakeholders, from the Organization for Economic Cooperation and Development (OECD) to the University of Michigan, to develop an effective methodology.

- Bridgestone has developed a strong methodology to both measures and manage its environmental footprint and reports clearly on performances and targets.

Figure 2: Bridgestone KPI on CO2 emission (performance and target)

What are the main challenges to Sustainable Finance?

One of the main challenges associated with Sustainable Finance is bridging the gap between investors and companies. Assessing corporate performance with a common language is an arduous task due to the size and complexity of multinational corporations. Meanwhile, investors are more and more interested in comparing the sustainability performance of different companies. To do so, they integrate Environmental, Social and Governance (ESG) standards in their investment decisions. Over the years, business has made progress in disclosing ESG data. However, work still needs to be done in this respect.

Why do companies struggle to disclose relevant ESG data?

Many are the reasons, such as:

  • Technical Difficulties: ESG impact is everything but easy to measure. Today, there is no global consensus on how to measure Social and Environmental Impact: finding effective KPIs can be extremely complex.
  • Governance Bodies: only with effective governance structures can companies be in full control of their processes and able to measure their performances.
  • Resources: impact assessment requires resources, both in terms of money and expertise.

What is the EU doing to support Sustainable Finance?

To support companies in disclosing their ESG impact, EU Institutions have engaged in various initiatives. The Directive on Non-financial reporting, adopted in 2014 and implemented in 2018, is recognized as a fundamental step forward in enhancing company disclosure. CSR Europe and its members played a major role in this policy dialogue, encouraging institutions, corporations and other stakeholders, to collaborate. Further complementing this Directive, the European Commission (EC) adopted the Action Plan on Sustainable Finance in March 2018. More recently, in one of the measures agreed in February 2019 under the plan, the EC wished to introduce two new benchmark categories: the “climate transition benchmark” and the “Paris-aligned benchmark”. The instruments will allow investors to measure with a common language the carbon footprint of an investment strategy. In this way, they will be able to allocate capitals in decarbonized activities.

 

CSR Europe will continue to work, equipping companies to tackle report-related obstacles and to achieve Total Impact Disclosure. Learning opportunities and capacity building activities are already on our agenda! Check them out, and don’t miss the next article on Taxonomy to be released soon!