A new report produced by Insightia, a Diligent brand, reveals that Europe leads the world in Environmental and Social scores, with the U.S. leading in Governance

U.S. organizations are proactively preparing for Scope 3 reporting, with 63% of the 500 largest U.S. public companies voluntarily reporting on Scope 3 emissions, according to a new report from Diligent, a leading GRC SaaS company. The ESG 2023 report produced by Insightia (a Diligent brand) in association with Vinson & Elkins, highlights how issuers are being held accountable for emissions reporting on a global scale, with regulators, standard setters and investors alike calling for mandatory Scope 3 reporting.

The sustained pressure to enhance climate disclosures underscores the need for clear and consistent insights into climate performance, as well as the ability to benchmark ESG data against industry peers to optimize shareholder engagement.

“Regulatory developments are set to revolutionize how companies globally are held accountable for their ESG policies and practices,” said Josh Black, editor-in-chief at Diligent. “With a myriad of new requirements to juggle, it’s increasingly important for leaders to be proactive in addressing ESG-related risks and opportunities. This is especially true for those in high-risk sectors such as energy and utilities.”

The report, which is powered by Insightia’s newly launched ESG module in partnership with Clarity AI, reveals that Europe leads the world in Environmental and Social scores with average scores of 55 and 47, respectively. Meanwhile, the U.S. leads in Governance, with an average score of 70.

See related article: Diligent Data Launches ESG Module, Empowering Organizations to Benchmark ESG Efforts Against Industry Peers

Other top findings include:

Scope 3 reporting goes global:

• Emissions-intensive sectors face sustained pressure to enhance their net-zero commitments, with climate change shareholder proposals winning 32.4% and 36.7% average support in the U.S. energy and aerospace/defense sectors, respectively, in the first five months of 2023.
  
• U.S. issuers are proactively preparing for Scope 3 reporting, with 63% of the 500 largest U.S. public companies currently voluntarily reporting on Scope 3 emissions.

Pressure mounts on issuers to enhance ESG disclosure:

• Although average support for E&S shareholder proposals appeared to fall over the last two years, the number that passed remains elevated and more ESG requests are being withdrawn for agreements. Twenty-six E&S proposals won majority support at S&P 500 companies in 2022, compared to 18 and 30 in 2020 and 2021, respectively.
  
• ESG metrics in compensation are increasingly the norm. Sixty-eight percent of 365 issuers surveyed in continental Europe and the U.K. in 2020 had at least one ESG metric in their incentive plans. Twenty-nine percent of FTSE 350 companies included at least one ESG metric in their executive compensation plans in 2019. This figure rose to 33% in 2021.

ESG activism out of favor with hedge funds:

• Rising inflation has placed ESG activism on the backburner for traditional activist hedge funds. 3.3% and 7.4% of environmental and social activist demands have been at least partially successful in the first five months of 2023, compared to 5.7% and 13.9% support, respectively, in the same period a year prior.