The increasing interest of investors in how sustainability matters affect organisations and in how organisations respond by managing, leveraging and taking advantage of sustainability to build long-term competitive advantage and achieve financial viability, is no longer a surprise.
Surveys point to topical areas investors prioritise, in addition to understanding the business growth strategy implications of sustainability. An important low-hanging fruit for organisations is providing information on the significance, or otherwise, of climate risk to the organisation, including the basis for the conclusion reached by management.
Climate risk has stood out for many reasons, due to its pervasive effects, including the contagion risk it poses, which could disrupt financial systems and supply chains.
In recent weeks, we have seen banks and corporates preparing a climate disaster response playbook to enable them prepare for and respond to a potential tail-risk climate event (a severe, low-probability, high-impact climate disruption).
While not every organisation will experience the adverse effects of climate risk to the same degree, organisations should be prepared to discuss their assessment of the significance or otherwise of the financial effects of climate risk on the business.
Climate risk has become a recurring topic for investors, irrespective of other material sustainability topics. While it may not be material to all organisations, investors are keen to understand the approach organisations have taken and the basis that justifies and supports it.
Another important topic for investors is understanding how organisations are using sustainability data to improve efficiency and performance. Investors are keen to gain insights on how sustainability is driving efficiency in energy and resource utilisation, supply chain optimisation, waste reduction and circularity, workforce productivity and product design.
Investor interest has been observed in cost-effective, sustainability-driven solutions that help organisations prosper, particularly in highly competitive, margin-thin industries. It is also closely linked to the organisation’s ability to build resilience when responding to shocks.
Organisations should be prepared to provide comprehensive disclosures on these matters in addition to the sustainability material topics identified.
