Navigating Disclosure and Performance ESG Standards

In the landscape of Environmental, Social, and Governance (ESG) standards, it is crucial to differentiate between disclosure-focused frameworks like the Corporate Sustainability Reporting Directive (CSRD) and performance-based standards such as B Corp certification. Insights from Carlota de Paula Coelho, Senior Policy Manager at B Lab and EFRAG SR TEG Member, help clarify these differences and offer practical implications for businesses.

Index

Disclosure ESG Standards

Disclosure standards, such as the CSRD, prioritize transparency and accountability. The CSRD expands upon the Non-Financial Reporting Directive (NFRD) by requiring a more comprehensive disclosure of ESG activities, risks, and opportunities. Starting in 2024, the CSRD will be implemented in phases, covering more companies over time, including small and medium-sized enterprises (SMEs).

Carlota de Paula Coelho emphasizes that the CSRD aims to harmonize ESG reporting across Europe, making it easier for companies to comply and for stakeholders to assess corporate sustainability performance. The directive mandates the use of the European Sustainability Reporting Standards (ESRS), which cover a wide range of environmental, social, and governance topics. Companies are expected to conduct double materiality assessments, considering both the impact of their business activities on society and the environment (inside-out perspective) and the financial risks and opportunities arising from sustainability issues (outside-in perspective).

Performance ESG Standards

In contrast, performance standards like B Corp certification focus on the actual impact and outcomes of a company’s operations. B Corp certification evaluates companies based on their social and environmental performance, accountability, and transparency. Companies must meet rigorous standards and undergo a thorough assessment to achieve B Corp status, which signifies a high level of commitment to sustainability and social responsibility.

Carlota explains that B Corp certification serves as a marker of ESG commitment to consumers and investors, highlighting companies that excel in achieving positive environmental and social outcomes. This certification not only assesses current performance but also encourages continuous improvement and innovation in sustainable practices. B Corp-certified companies must amend their legal frameworks to balance the interests of stakeholders and shareholders, ensuring long-term commitment to positive impact (B Lab Europe).

B Corp certification evaluates companies across five categories: governance, workers, community, environment, and customers. This comprehensive assessment includes policies for reducing carbon emissions, promoting diversity, and preventing corruption, among other criteria. Carlota emphasizes, «We prescribe behavior» This underscores the distinct focus of B Corp on actual performance and outcomes.

Benefits of B Corp Certification

Improved Resilience: B Corp-certified companies are recognized for their resilience in facing disruptive events. According to a Deloitte study, companies that balance the needs of all stakeholders adapt more quickly to changes, enhancing their overall stability.
Enhanced Investor Attraction: Investors are more likely to support companies with strong ESG practices. B Corp certification provides a credible signal to investors that a company is committed to sustainable and ethical practices, aligning with the growing trend of responsible investment.
Attracting and Retaining Talent: Being a B Corp helps attract purpose-driven employees. A LinkedIn study found that purpose-oriented companies experience higher engagement and retention rates, as employees value working for companies that make a positive impact.
Alignment with Customer Values: Consumers are increasingly willing to support companies that demonstrate a commitment to social and environmental responsibility. B Corp certification signals to consumers that a company prioritizes these values, potentially driving sales and customer loyalty.

Practical ESG Standards Implementation Insights

Materiality Assessment

Carlota advises companies to start with a doble materiality assessment, identifying key areas of impact and prioritizing reporting efforts. This involves mapping stakeholders, understanding business relationships, and assessing actual and potential impacts, risks, and opportunities. For performance standards like B Corp, this means focusing on areas where the company can make significant positive contributions, such as community engagement, employee welfare, and environmental stewardship.

ESG Data Collection and Integration

Leveraging available data and integrating it into decision-making processes can enhance the effectiveness of both disclosure and performance strategies. For performance standards, it is crucial to collect data that demonstrates tangible improvements in ESG metrics, such as reductions in carbon emissions, increases in employee satisfaction, and improvements in supply chain transparency. Carlota advises, «Try to have a very good understanding of your stakeholders. Who they are, what they expect from you, and how do you affect them?»

Stakeholder Engagement

Effective stakeholder engagement is essential for both disclosure and performance standards. For performance standards, this means actively involving employees, customers, and community members in the company’s sustainability initiatives. Regular feedback and transparent communication can help build trust and drive continuous improvement.

Continuous Improvement

Performance standards like B Corp emphasize on continuous improvement. Companies should set ambitious targets, track progress, and regularly update their strategies based on performance data and stakeholder feedback. This iterative process ensures that companies not only meet but exceed sustainability goals over time. Carlota notes, «Formulate an action plan for improvements… to leverage this into really finding out where I have the most margin for improvement and how it could also benefit my bottom line».

Conclusion

Understanding the differences between disclosure and performance ESG standards helps companies effectively navigate their sustainability journeys. While disclosure standards like CSRD focus on transparency and regulatory compliance, performance standards such as B Corp certification emphasize tangible outcomes and continuous improvement. By integrating insights from both approaches, companies can develop robust ESG strategies that drive positive impact and build stakeholder trust.

For further details and to explore more insights, watch or listen to the full interview with Carlota de Paula Coelho.Join the new impact leaders and transform your ESG reporting and performance with APLANET.

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