Advanced BioFuels USA

by Cynthia Thyfault and Gerard J. Ostheimer (Global Biofuture Solutions/Biofuels Digest) ESG reporting seeks to create a standard way for a range of investors to understand a company’s (or a fund’s or an asset’s) financial and non-financial impacts, as well as the strategy, approach, and performance of the company as it seeks to make those impacts. In this series of articles we are exploring how bioeconomy companies can tap into opportunities created by the growth of ESG investing, and more broadly how ESG reporting can help bioeconomy companies improve and de-risk their operations.

ESG investing has evolved organically and competitively over the last few years. In truth, the rapid increase in ESG participants, standards, frameworks, and nomenclature has created a jumbled and confusing landscape. Numerous stakeholders and service providers are creating an ESG ecosystem that consists of

• Reporting Frameworks
• Databases
• Data Aggregators
• Corporate Rating Agencies
• Fund Rating Agencies
• External Assurance Providers (i.e. Auditors)

In this installment of our four-part series we explore the evolving ESG ecosystem with an emphasis on understanding how ESG reporting applies to bioeconomy companies, including how to decide which ESG reporting framework to use.

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ESG reporting has become a catch-all term for communicating quantitative and qualitative corporate impacts, even though there are several distinct audiences for this information. Stakeholders as varied as customers, employees, industry peers, environmental NGOs, investors, and ESG ratings agencies will be interested in a company’s disclosures, but they are interested for different reasons. The key to disaggregating these audiences is financial materiality.

Many stakeholders will be interested in a company’s behavior and ESG impacts. These stakeholders might be issue driven. Is a company effectively combatting climate change? Is it reducing de-forestation? Is it compensating workers ethically? ESG reporting can inform these customers, peers, community members, and issue-driven investors.

ESG reporting can also be considered quantitative branding. From that perspective, ESG reporting is a type of sustainability branding and marketing.

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We believe that bioeconomy companies should provide 1) ESG reporting and for investors that are examining a company’s financially material “management discussions and analysis” (MD&A) and 2) ongoing reporting for investors and the public.

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We are interested in helping bioeconomy companies understand ESG reporting so as to drive three positive financial outcomes:

1. Recruit diverse ESG and/or impact investors.
2. Support investor relations over time by providing financially material ESG data.
3. Improve and de-risk operations by aggregating and analyzing one’s own ESG data.

Given the (many) existing requirements that biofuels and bio-based products have in order to be certified sustainable, bioeconomy companies may be surprised to hear that they need to learn another reporting language. There is certainly considerable overlap between the data requirements for sustainability certification and ESG reporting, particularly for metrics of climate and (E)nvironmental impact. However, bioeconomy companies can benefit from expanding their reporting beyond environmental sustainability (e.g. water quality and use, air quality, and carbon scoring) to include their (S)ocial impacts and approaches to (G)overnance.

Two of the leading reporting frameworks are the Global Reporting Initiative (GRI) and the Sustainable Accounting Standards Board (SASB). Their different approaches highlight the split between reporting to a general sustainability audience versus an MD&A audience.

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The elephant in the ESG room is Climate-related Financial Disclosure. And like an elephant in a watering hole, it has a tendency to muddy things up. Specifically, people tend to conflate the concepts of climate-related reporting with environmental reporting, while we in the bioeconomy know that environmental reporting is multi-faceted and so much more than climate reporting. As with other ESG reporting there are two sides to the coin: 1) reporting on your company’s impact on climate change, i.e. emissions, and 2) reporting on the impact of climate change on your company, i.e. risks and risk mitigations for your business.    READ MORE

ESG Investing and the Bioeconomy: Part 1 – Impact and ESG Investing Through the Financier’s Eyes