The five key ESG questions investors are asking

As new European regulations give investors responsibility in safeguarding the environment, ESG has come of age. Just as legislators intended, the impact on listed companies is dramatic.

To remain investable across the market, every business will now have to deliver sharper and more detailed ESG narratives, as well as the data to back them up.

As you prepare your response, make sure can answer these five key questions that engaged investors are almost certain to fire at you:

#1: Why did you choose those exact metrics and methods?
ESG isn’t (yet) like a balance sheet. It’s measurement and reporting isn’t (yet) defined by a standardised set of data points and principles. Investors are professional sceptics, so you’ll need to justify – and fiercely defend – your choice of metrics and methods.

Focus on explaining that your data provides an accurate representation of your ESG position and that it’s creditable, straightforward and consistent. To ensure confidence, highlight your ESG metrics in all your financial comms and presentations. Keep on demonstrating that you believe in your methods and approach and state the reasons why the business is dedicated to improving its ESG performance.

#2: Why have you changed your ESG reporting method?
As the world has yet to standardise, it’s inevitable that you’ll upgrade your reporting methods. It is, in fact, to be encouraged. However, sceptical investors are on the look-out for greenwashing and changes in methods are a well-known way of obscuring uncomfortable truths.

To avoid this suspicion, ensure that you have an overlap year where you report both the old and new metrics. If there are any poor performing data points, keep reporting on those until you have seen significant improvement. And if there are data points you do not capture but are relevant for your sector and you know your peers are capturing, explain the steps you are taking to report on them.