Just 44 percent of companies offer climate-related disclosures aligned with the common metrics and topics across the Corporate Sustainability Reporting Directive, International Sustainability Standards Board’s sustainability and climate-related standards and the SEC’s climate-related rule proposal, according to research from Nasdaq IR Intelligence.
The research also finds that 45 percent of proposed and final rules and regulations on ESG reporting are climate-focused.
The findings come from The State of Sustainability and ESG in 2023 report, which analyzes data from around 7,200 companies across 75 countries and 59 industries by using Nasdaq Sustainable Lens, an ESG intelligence platform that harnesses the power of artificial intelligence (AI). AI and internal subject matter experts were also leveraged to analyze approximately 1,600 pages of regulatory text to uncover common disclosure requirements in final and proposed sustainability, ESG and climate regulations.
Mike Stiller, who covers new initiatives for Nasdaq IR Intelligence and is lead author of the report, describes the sustainability and ESG disclosure space as ‘a wonderful use-case for AI’ – both internally for gathering and mining company data and externally when benchmarking against peers or reporting requirements.
Nasdaq Sustainable Lens allowed Stiller to not only look at a larger list of companies – he notes that this broader view is primarily possible with AI – but also to set out what companies are doing against both existing and expected regulations.
Progress and confusion
The idea of ‘progress and confusion’ serves as a thread through the research findings.
‘Despite some formalization happening on the regulation side, companies could still struggle to make sense of regional requirements,’ Stiller says.
The gap between regulation and reporting appears most pronounced around climate, which Stiller describes as ‘the area most aligned across both proposed and final-status regulations – and also the area where companies are the least detailed in their disclosures.’
This is not a uniform picture, however. Nasdaq IR Intelligence’s research points to sector differences, with utilities and energy companies offering more detailed disclosures, compared with other sectors like healthcare and technology.
This often comes down to how familiar a company or sector is with sustainability and ESG reporting.
‘Companies that have been invested in this discipline for years have likely done the work and are likely in a solid place to be able to respond to regulations,’ says Stiller.
Other companies may not have dedicated years of resources to sustainability and ESG – and that leads to a ‘wait and see’ approach for some. ‘Companies that are newer to this discipline are likely waiting for more clarity on the regulatory front before moving forward,’ Stiller explains.
The ESG building blocks
Even for those starting from scratch, there is an element of being able to leapfrog some challenges, he continues. Those newer to sustainability and ESG have the benefit of learning from those that pioneered, and can take advantage of technology to speed up processes that were previously manual and laborious.
‘Companies that are adopting disclosures a bit later may not have in-house sustainability teams – and this is where IR comes in. IR professionals, in combination with other internal teams, are often leading the sustainability and ESG initiatives,' says Stiller. 'For example, it may be a committee-based sustainability team, but no one is necessarily dedicated to sustainability.’
It’s these smaller teams, where ESG isn’t the day-to-day activity, that can really benefit from tools like Nasdaq Sustainable Lens. Tools, Stiller stresses, are all about saving time on research, data gathering and benchmarking, offering analysis to identify gaps against reporting standards and requirements or against your peers and freeing up time for human-essential activities like relationship-building.
‘By using AI, you offload some of the mundane, research-oriented tasks that used to take weeks or months and bring that down to minutes, potentially,’ he says. ‘The question is, where do you redeploy that extra time? We talk a lot about research and disclosure and AI specifically is well suited to solve some of those challenges. But going out and decarbonizing, doing the hard work around your supply chain, being well networked within your organization – that is going to be work for humans.’
Roadshow prep
Stiller notes a number of IR-specific use-cases for Nasdaq Sustainable Lens. As well as quick access to best practices and regulatory information, it also offers internal potential: ‘You get questions from investors, from your board and from your CFO. Being able to quickly search for what you have in your own reports – particularly if you’re not leading sustainability and ESG initiatives – can deliver value to IR professionals.’
Comparative intelligence may also be leveraged ahead of a governance or ESG roadshow, Stiller notes: ‘You can see how you stack up relative to peers, where your gaps are, or your strengths relative to different ESG frameworks. That also offers potential to IROs.’
Download The State of Sustainability and ESG in 2023 report for findings and insights to prepare for 2024. Plus, learn how your team can enhance decisions, productivity and credibility with Nasdaq Sustainable Lens.
