ESG Disclosures: What are publicly traded companies reporting?

Environmental, social and governance aspects have been widely discussed in the market and demanded by investors - and several stakeholders - who seek companies that present positive impact actions, value creation for stakeholders, sustainable and transparent growth.  Understanding what data publicly traded companies have available in the market and the depth concerning each pillar is fundamental to demonstrate the current Brazilian scenario, in addition to identifying the advances and challenges in the adoption of reporting practices related to the topic.

In the survey ESG Disclosures:  What publicly traded companies are reporting?, conducted by Grant Thornton Brazil, in partnership with BR Rating, were revealed surprising data from the information extracted from sustainability reports, reference forms, management reports and financial statements of 328 companies from 26 segments - among them: transport and logistics, energy, construction, trade, financial services, sanitation, technology and communications.

Within this scope, it was identified that less than half (48%) of the companies disclose the annual or integrated sustainability report.  When preparing reports, however, 48% of the companies disclose the methodologies or standards followed, and the main ones used are the GRI - Global Reporting Initiative (46%); IIRC - International Integrated Reporting Council (22%), and the SASB - Sustainability Accounting Standards Board (21%).

Material issues and reported goals

Each company has different strategies and, based on this alignment and clarity of the business, it is possible to identify which are the material topics that generate or protect the organization's value.  Depending on the segment, the organizational culture, and the company structure, the topics change, and having this materiality matrix defined is the first fundamental step to facilitate the disclosure of the indicators.

According to the survey, the material issues are disclosed by 31% of the companies surveyed in their ESG reports, however, only 8% inform the goals related to these issues, with emphasis on the energy (27%), transportation (19%), and sanitation (15%) sectors.

The study also points out that 12% of the companies disclose the material issues in other reports, such as the Management Report, Financial Statements, and Quarterly Reports, but less than 1% of the companies in the sanitation sector disclose the goals related to the material issues in these reports.

Daniele Barreto e Silva, leader of Sustainability at Grant Thornton Brazil, points out that the main driver of sustainability on the executive decision agenda, in the vast majority of organizations, is still the pressure for compliance and issues related to reputation risks and brand value. "It is necessary to move forward and go beyond this reactive agenda.  Brazilian companies have broadened their focus on ESG aspects, but there are still important gaps.  Environmental and social aspects have not yet achieved their due place in reporting. With the various movements related to ESG aspects, society and investors are increasingly able and willing to identify companies that are truly committed to and have concrete sustainability practices.

Independent Audit of the disclosed reports

In the survey it was possible to identify that only 8% of the companies that publish the annual sustainability report or integrated report submit them to an audit or review by an independent entity - which directly impacts the credibility of the disclosures.  Currently, there is no capital market obligation in this regard, however, starting this year, according to CVM Resolution 14, companies that choose to use the integrated report will be required to submit it to an independent audit.

It is worth mentioning that companies inserted in regulated sectors or that have operations with foreign markets - mainly European and North American - are more advanced due to the greater demands of the regulatory agencies with regard to controls, data, reports, and the definition of goals.

For Adriana Moura, partner leader of Governance, Risk and Compliance (GRC) at Grant Thornton Brazil, it is important to understand how publicly traded companies perceive the growing global demand for ESG to help them strengthen communication approaches, improve processes and materially sensitive indicators in order to meet the expectations of all stakeholders.

"Companies are not yet properly structured to leverage all the issues ESG covers or even to disclose sustainability data with specificity to gain greater credibility with investors. In general, we believe that the quality and quantity of reporting on ESG issues tends to improve, especially given the growing interest of investors and the actions of regulatory bodies."

"Companies are not yet properly structured to leverage all the issues ESG covers or even to disclose sustainability data with specificity to gain greater credibility with investors. In general, we believe that the quality and quantity of reporting on ESG issues tends to improve, especially given the growing interest of investors and the actions of regulatory bodies."

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