New conditions for raising capital
The impulse for actual economic change is expected to come from the financial sector, as one of the areas on which the European Union (EU) focuses its activities. Their purpose is to redirect funding towards sustainable business activity and create new conditions for raising capital. Financial institutions will have to incorporate non-financial opportunities and risks into their investment and financing process. The EU’s Sustainable Finance Disclosure Regulation (SFDR), which began to apply on 10 March 2021, requires financial investors to take into account ESG risks and integrate ESG issues into their investment strategies.
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Currently, only 31% of investors formulate an engagement policy on monitoring companies from the perspective of ESG risks.
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The criteria the surveyed investors pay most attention to primarily include aspects related to the environment and climate.
Formulating an engagement policy on monitoring companies from the perspective of ESG risks
Non-financial criteria taken into account by investors
The coming years will be marked by growing demand for investments not only in green businesses, but also in companies that can boast mature corporate governance. It will be necessary to look at corporate governance more broadly, not only from the perspective of a company’s own operations, but also those of the capital group and, in many respects, the entities that comprise the whole value chain. This has been discussed by investments funds, and it also stems from the regulations that are coming into force.
Sustainability strategy – a regulatory requirement or a long-term ambition?
Significant regulatory changes and the transition towards sustainable long-term operating models currently pose a major challenge for business organizations. The pace and direction set by the European Commission as well as international organizations and global initiatives, including the United Nations and the World Economic Forum, leave no doubt: businesses around the globe must pursue responsible development, taking into account not only growth in revenues but also the impact of their activities on the environment in which they function.
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One-quarter of the surveyed supervisory board members declare that ESG issues are currently not part of their agenda. The most common situation now includes making sure that the company meets the regulatory requirements for non-financial reporting (75%).
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For half of the companies surveyed, non-financial reporting is a matter of compliance. Only 43% see this as an opportunity to present their sustainability strategy and its impact on value creation in the long term.
The place of ESG on the agenda of supervisory boards
The approach to non-financial reporting in listed companies
ESG is only seemingly just another regulatory requirement. Although this is just the beginning of a long journey, the institutional clients of banks are beginning to realize that qualitative factors will be significant from the perspective of access to financing and its cost.
Non-financial reporting – the company's mirror in the area of sustainable development
There are many non-financial reporting standards and frameworks. They should be treated as complementary, and it is possible to apply them together. A framework is a set of principles and guidelines on the structure of the whole of the report and its individual sections. Standards are detailed guidelines on the scope of information that should be included in the report (see the box on the right). They are primarily aimed at making non-financial criteria (risks and opportunities) measurable and assessing their impact on the situation of the company and its long-term development.
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Regulatory requirements were the top reason why 50% of the listed companies we surveyed started non-financial reporting. This is presumably why half of the respondents started this process 3–5 years ago, in connection with the entry into force of the Non-Financial Reporting Directive (NFRD).
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Among Polish listed companies, the prevalent approach to non-financial reporting is based on the GRI Standards (35%).
The start of non-financial reporting in companies
Non-financial reporting standards and guidelines applied by listed companies
All environmental protection actions should be measured and subject to reporting, which entails properly defining the key indicators and targets, determining processes, assigning responsibilities within the organization, identifying data sources, and implementing the relevant tools. This makes it possible both to guarantee high-quality information and to lower costs, thus increasing return on investment.
About the survey
The purpose of the survey was to analyze the implementation, reporting, and use of non-financial criteria among institutional investors, stock analysts, and listed companies as well as the preparedness of supervisory boards for oversight of ESG issues in their companies.
The survey was designed as an online questionnaire and conducted in late February and early March 2021.
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