ESG or sustainability disclosure is often referred to as ‘non-financial reporting’.  Yet,  sustainability activities and approaches can have major impacts on the financial results of companies, and by extension its investors. Investors have observed the rising impact of ESG on company activities and financial returns and they are increasingly demanding quality ESG disclosures.

ESG Disclosure StandardsMajor Disclosure Frameworks and StandardsESG Disclosure Process

ESG Disclosure Standards

There are multiple standards and reporting requirements in ESG reporting (see Table below on Major Disclosure Frameworks and Standards).  At present, companies must choose between such standards and frameworks. Reporting methodologies and approaches are complex and dynamic, requiring deep professional knowledge and expertise and must be backed up with sustainability strategies and risk management processes.

Major Disclosure Frameworks and Standards

ESG Disclosure Process

Steps recommended for sustainability information:

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  Identification of internal responsibility for ESG reporting
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  Stakeholder mapping exercise
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  Targets or indicators for each information need
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  Include material content for the company and its stakeholders
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  Review and approval by the board

The diagram below presents a 5-step process for the preparation of the report

Dividend Disclosure

Leadership practices suggest that companies disclose their dividend policy as part of the annual report. A dividend policy typically sets the percentage of earnings that will be distributed to shareholders, in proportion to their holdings. Companies in growth mode often choose not to distribute dividends, whereas more stable and established companies use dividends as a feature to attract income-focused investors.

Tax Disclosure

Leadership practices suggest that companies disclose tax transparency statements, which typically contain a description of the company’s strategy and policy regarding corporate tax and the actual amount of tax paid in different jurisdictions and segments where it operates. Example 3.21 shows how the Danish pharmaceuticals company, Novo Nordisk, publicly discloses actual payment of taxes.

Tax has become a complex matter with various dimensions. The governing body should be responsible for a tax policy that is compliant with the applicable laws, but that is also congruent with responsible corporate citizenship, and that takes account of reputational repercussions. Hence, responsible and transparent tax policy is put forward as a corporate citizenship consideration in King IV

King IV Report on Corporate Governance for South Africa 2016