ESG Reporting Is Increasingly Important—and Complex. Here's What Marketers Should Know

As industries and lawmakers grapple with the reality of climate change and the transitions that it requires, the environmental, social and governance (ESG) regulatory and reporting landscape is expanding into a complicated sprawl. To help marketers navigate those complexities, the 4A's today released a new white paper that outlines what agencies should know about ratings providers, reporting frameworks and reporting platforms. Powered by climate tech investments, the space has grown into something of a Wild West, noted Alison Pepper, evp of government relations and sustainability at the 4A's and author of the white paper. The report outlines specific frameworks and providers that agencies can look to—though due diligence is crucial as things continue to evolve. "There's so much private equity money coming into climate tech right now that you're seeing a lot of new players in the space that didn't exist as recently as two to three years ago," Pepper said. "A lot of that's spurred on—at least domestically in [the U.S.]—by what the White House has been doing, and what Congress has been doing with things like the Inflation Reduction Act." As Brands Lurch Towards Green Goals, a Booming Business of Climate Change Is Emerging Lack of consistent measurement in ratings providers While designed for the finance industry, ESG ratings providers aim to give investors an idea of how well publicly traded companies are managing ESG-related risks. The problem is that they're all using slightly different metrics, and are often measuring different things altogether. Some, for example, will prioritize a firm's lobbying activities and DEI hiring practices while others will weight human rights and product safety more heavily. Correlation is only about 60% across major ESG ratings providers, according to a 2019 study by MIT. By comparison, credit ratings have a 99% correlation rate. Still, a good rating is important for publicly traded agencies, and may become necessary for agencies with publicly-traded clients as the SEC mandates climate-related disclosures. "What's really important is that we have real clarity on what it is we're trying to achieve, and [what we can] consistently measure," Mark Kirkham, svp and chief marketing officer of PepsiCo’s International Beverages business, told Adweek. Four reporting frameworks to note ESG reporting frameworks were also developed for publicly traded companies to help identify and mitigate risks that investors might be interested in. The frameworks offer a way for companies to identify, measure, compile and package the information required by ESG ratings providers. The 4A's identifies four main U.S.-focused frameworks that agencies should be aware of: The Task Force on Climate-Related Disclosures (TFCD), Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI) and the United Nations Global Compact. Full compliance with one of these frameworks may be overkill for smaller agencies, the 4A's paper noted. On the other end of the spectrum, PepsiCo, which works across multiple regulatory environments, issues reports that comply with three separate frameworks (TFCD, SASB and GRI). Thanks to Regulatory Action, Scope 3 Emissions Are Getting More Attention. Here’s What Marketers Need to Know While it's mostly publicly-traded agencies that require these frameworks now, regulatory action at the SEC—or even on a more local level—could change that in the future. Last year, the SEC proposed a rule that would require publicly traded companies to report on greenhouse gas emissions from their supply chains (called Scope 3 emissions). For many brands, agencies fall into their Scope 3 emission—meaning that clients are beginning to require more detailed reporting on greenhouse gas emissions from their agencies. Reporting platforms can simplify the process As agencies are wading through the complexities of ESG ratings and reporting frameworks, an increasing number of platforms are emerging to help simplify the process. But as each step would benefit from more widespread standardization, reporting platforms offer the biggest risk to agencies looking for a quick win in the ESG space. "This is not a mature market," Pepper said. "There are going to have to be a lot of questions asked and a lot of due diligence by everyone in the advertising ecosystem to make sure that who they're engaging with and what they're engaging on not only: A) does what it says it does, but B) doesn't subject the company to greenwashing." The 4A's highlights the Carbon Disclosure Project (CDP) and EcoVadis as two reporting platforms that clients are most often requesting that agencies use. While dozens—if not hundreds or thousands—more exist in the market, both CDP and EcoVadis ask many of the same questions that ratings providers will also ask. Beginning to compile this information now will help agencies to better comply with future regulatory environments and client requests.