S5 E9: Why Corporate Communicators Must Learn the Language of ESG Reporting with Michael Diegelmann of Global ESG Monitor
The European Union's new regulatory landscape is setting the stage for transformative changes in how companies report sustainability.
With pending regulations set by the EU's Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS), companies are facing new challenges in how they report on sustainability and environmental impact.
Michael Diegelmann, co-founder of the Global ESG Monitor, discusses the challenges and responsibilities of corporate communications in this new era of transparency and accountability that affects not just European entities but businesses across the globe.
At the core of this evolution is the need for nuanced, ethical communications that not only meet regulatory expectations but reflect a true commitment to sustainability and equity.
Key Takeaways
- New European regulations will significantly impact global corporations and require a new approach to sustainability communications.
- Businesses must perform materiality assessments to identify environmental and social topics that are crucial to their operations and align their reporting accordingly.
- Corporate communications must evolve alongside new regulations to effectively convey the context of sustainability data to stakeholders and avoid greenwashing.
- While the US is beginning to implement its own regulations, American businesses must adapt to meet EU standards to maintain their European operations.
- Non-compliance or misleading sustainability reports can lead to severe consequences, including legal liability and reputational damage.
About the Guest
Michael Diegelmann is co-founder of the Global ESG Monitor and founder and CEO of cometis AG. In his 25-year career he has gained a wealth of experience across the entire spectrum of investor relations. His specialties include IPOs, capital raises, ESG consultations, hostile and friendly takeovers (cross border), bond issues as well as corporate crises and all aspects of investor relations and financial media relations. Michael has a long-standing network of contacts to media, analysts, fund managers and many opinion leaders in the financial community. In addition, he is co-author of numerous specialist publications, including the bestseller “100 Financial Ratios” with more than 300,000 copies sold.
About the Host
Abbie Fink is president of HMA Public Relations in Phoenix, Arizona and a founding member of PRGN. Her marketing communications background includes skills in media relations, digital communications, social media strategies, special event management, crisis communications, community relations, issues management, and marketing promotions for both the private and public sectors, including such industries as healthcare, financial services, professional services, government affairs and tribal affairs, as well as not-for-profit organizations.
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Transcript
From the Public Relations Global Network, this is PRGN Presents. I’m Adrian McIntyre.
Abbie Fink:And I’m Abbie Fink, president of HMA Public Relations in Phoenix, Arizona and a founding member of PRGN. With public relations leaders embedded into the fabric of the communities we serve, clients hire our agencies for the local knowledge, expertise and connections in markets spanning six continents across the world.
Adrian McIntyre:Our guests on this biweekly podcast series are all members of the Public Relations Global Network. They will discuss such topics as workplace culture, creative compensation and succession planning, the importance of sustainability and environmental, social and governance programs, crisis communications, and outside of the box thinking for growing your business.
Abbie Fink:For more information about PRGN and our members, please visit prgn.com. And now let’s meet our guest for this episode.
Michael Diegelmann:My name is Michael Diegelmann. I’m co-founder of the Global ESG Monitor. And the Global ESG Monitor has developed a methodology to make sustainability reporting measurable and comparable. And based on that methodology, we give corporates great, you know, analytics to improve their sustainability reporting.
Abbie Fink:And along with that, of course, then comes regulations around sustainability and how those are going to impact corporate communications. And Michael, this has been your conversation for many, many months in talking to us about how these sustainability regulations are really going to impact corporate communications. Tell us a little bit about those. What are they about? What are they going to be doing? And how are those going to be affecting what we do as corporate communicators?
Michael Diegelmann:Let me bring that into perspective. The European Union is the first continent on the planet who’s taking climate change and inequality really serious. They have introduced a lot of new regulations, and some of them are affecting corporates on the planet. And what really is important for corporates around the world is that those regulations, are making corporates liable for what they say in the future, and therefore, it will change the way corporates can communicate.
Michael Diegelmann:In a nutshell there will be more than a couple of hundred thousands of companies globally be affected by those regulations, to disclose a report publicly and there are many more hundreds of thousands of corporates being affected indirectly because they need to, provide information to their customers which then need to report.
Abbie Fink:Are there time limits or time frames around how this communications effort needs to take place or for how long from the time the regulations are sent forth, do they have to respond? You know, what kind of guidance is there around this reporting?
Michael Diegelmann:So let me just start off with who is going to be affected. And this is all regulated in the so-called CSRD, so Corporate Sustainability Reporting Directed by the European Union. And this directive is explaining when to what kind of companies need to disclose a report. So next year, next March, April, it’s the first season that all companies in Europe.
Michael Diegelmann:Who are publicly listed or are of interest to the financial system, they will have to report under those new rules. And then over the course of the next four years until 20 29, for the year 20 28, it goes down to small and mid-cap companies all the way down if you make more than 200 million revenues, and have a certain, I think, 500 people working for you, you will have to disclose such a report.
Michael Diegelmann:Now, the CSRD is also defining that companies, for example, from the United States, Canada, South America, or Asia, who have a production facility in Europe and make more than 150 million revenue within the European Union, they would also have to disclose a report under those, regulations and those standards.
Michael Diegelmann:Now, imagine those companies when they have to report on so many different items defined by the ESRS, the European Sustainability Reporting Standards. They need data. Those ESRS require up to a thousand data points in criteria from corporates. So, not only from the corporate itself, but also along their value chain, which means all the suppliers and all the way up to the customers. That’s why even if you are a small company and you work with a large corporation who needs to report, you will be required to deliver that data to the company that needs to report.
Abbie Fink:It seems like a very daunting and overwhelming process, especially for, you know, those maybe those smaller companies that have not had to do this in the past. And as you said, these reporting requirements are going to not only apply to the large companies, but anyone that is doing business within or with smaller companies doing business in the EU. Are they going to be held to the same standards? Are they still going to have all those thousand data points that they have to abide by? Or is there levels by which the type of company you are in certain regulations and reporting that you need to abide by?
Michael Diegelmann:No, it’s like every regulation. It follows the principle of equality. There’s a new law, for example, for companies.
Michael Diegelmann:Labor safety, that applies to all companies, you know, who need to provide any kind of labor safety issues. So there’s no difference between a small or large company. It’s just the timing when they have to disclose information. There are, you know, a few years’ time now for them to prepare. Now, the criteria that apply for the corporates, the corporates need to define themselves based on a so-called materiality assessment.
Michael Diegelmann:In that materiality assessment, they define what is crucial material for their business in the future and for their impact on the environment and the social infrastructure. Right? And based on this materiality assessment, the reporting scope and the reporting requirements are then defined, through the standards being, you know, mandatory now from the European Union.
Michael Diegelmann:So to give you an example, if you are a clothing company, most likely a material topic for your business is water, the consumption of water, the recycling of water, right? So that means If you have defined water as a material topic for your business, then all the requirements or the reporting requirements for water apply to you.
Michael Diegelmann:If you are an automotive company and you have a lot of, you know, productions all around the globe, most likely the material topic will be workers in the value chain. Now, if you have this kind of material topics, those criteria adapt for this special criteria of workers in the value chain. And then it comes up to information on work safety, human rights, everything that is being defined. Now, a topic like climate, that needs to be reported on for all companies because climate affects us all. Same for workforce.
Michael Diegelmann:Every company has their own workforce. And I know, especially in the US, there’s a big discussion about DEI, and all those criteria discussed there will be required to report. And it’s not only to report, it’s to report on progress. And the trickiest thing is that if you do not report those information, then most likely there will be issues for a corporation coming from the banks, for your loans, or from the investors, or your equity, or even worse, from your supply chain.
Michael Diegelmann:So some corporates may delist you as supplier if you don’t provide data on your CO2 emissions or on your plan on how to reduce your CO2 emissions. And this is, at least from my understanding, how I experience the situation here in Europe, this is the biggest threat to all companies. Because many corporate owners still believe, ah, leave me alone with all these details. Who cares, right? If you have that attitude you will run out of business.
Adrian McIntyre:Well Michael if that’s a problem in Europe where there certainly is an established history of this kind of regulation and reporting requirements it’s got to be even more of a problem when it comes to the united states which is behind in many respects that level of sophistication and has a history of isolationist thinking, whereby it’s become only recently even that the United States has come to think of itself as part of a North American economic group, a couple of decades of that.
Adrian McIntyre:We’ve seen in the past a very light exposure to this with the GDPR, the General Data Protection regulation, whereby all companies with websites, because the EU put this in place, now had to change and put a little banner about, you know, geese and things of that nature. There were much more in-depth aspects of that regulation. But over here in the US, it was kind of like, yeah, we put the cookie banner like we’re done.
Adrian McIntyre:How do you see this playing out in regards to the way the EU has to pursue this in its own terms, But also globally, as you mentioned, these large corporations with a presence, manufacturing or otherwise, on the European continent are also implicated and the mindsets are nowhere near the same.
Michael Diegelmann:I think your point directs us to a political discussion. From my experience talking to North American corporates or CFOs over there, they know the regulation is in place and they have understood if we want to do business, if we want to continue doing business in Europe, we have to cope, with the new reality. Do they like it? No. Who likes regulation? Nobody really likes regulation. I totally understand that.
Michael Diegelmann:However, if we put that overall topic into a bigger perspective It’s about our planet, It’s about what comes from climate change What comes from inequality And therefore, corporates do have a responsibility to be a part of the society and take actions for a change, Now, to your point.
Michael Diegelmann:And, Adrian, it would probably take more time. And you can see first signs, especially in North America or in the U.S., especially that the Security and Exchange Commission, for the first time in history this year, has disclosed a set of regulations when companies have to report on climate issues. Now, it was much weaker than the original draft. It went through. So there is a, it is a point of no returns already reached. So it is not going to go back. It will continue. It may take a little longer than some NGOs want it to be, but it is coming. That’s for sure.
Abbie Fink:Well, and Michael, you advise clients on this topic and have for, for a very, very long time. And, and, you know, there’s, there’s a process in place or needs to be in a company for how this reporting is going to happen, you know, understanding the regulations and what the standards are. And are you suggesting that corporate communications to some extent needs to own some of that responsibility to manage how that information Is incorporated into the organization, ultimately creating the reporting structure. So there’s this level now of what those in corporate communications need to understand about the regulations, the impact and what the organization needs to do.
Abbie Fink:And as I understand it, really take on the role as an advisor on these topics and much to what you just said, it’s happening. We have to learn to work within this structure. And then how do you as an advisor to, you know, CEOs and corporate communicators help them understand it so that they ultimately can, you know, deploy these regulations and standards and the reporting process into their companies over the next handful of years when it’s going to be mandatory that this reporting process happen?
Michael Diegelmann:So look, first of all, The executive board needs to understand there are reporting duties coming. Now, the ESIS standards, they define what needs to be reported in detail. And corporate communication needs to bring all this information into context.
Michael Diegelmann:So, give you an example. If you are on a growth strategy and you are in the production, you know, heavy production industries, so you want to grow your business, at the same time you need to decarbonize to stay in the financial system, well then, this needs to be explained. How can you grow your company and decarbonize? This will not work without good corporate communications, okay? Or if you reduce the number of CO2 emissions in your corporation without giving an explanation what happened in your business over the course of that period of time, nobody.
Michael Diegelmann:Will be able to understand what the corporation is trying to say. Now, we as corporate communicators know that the worst thing that can happen is that somebody is trying to make its own conclusions. But we want to make sure that if we disclose a certain information, it’s in the right context. That is why step number one for corporate communications is to learn the vocabulary that is coming up.
Michael Diegelmann:You know, they need to understand what’s behind all this criteria like carbon removals pricing, like GHG emissions, energy consumption mix, transition plan, governance on climate. What does that mean? And, you know, those are just the subtopics of climate change and there are sub-subtopics below it. And this is what corporate communications people need to learn.
Michael Diegelmann:It’s a huge chance And I can tell you the next generation Will be dominated by this kind of vocabulary In order to explain it, Okay, so just to give you another example, you know, which is big, let’s say you’re a big sports company and, you know, in the U.S. There are quite a few big sports companies who produce sneakers and T-shirts and all this kind of, you know, clothing.
Michael Diegelmann:Those companies do a lot of advertising when it comes to diversity. So if you look at advertising, you see a white old guy, you see a black old guy, you see a colored young lady, a colored oldie, you see people with disabilities. So in the advertising, they’re already reflecting diversity. Now, the truth of the matter is in the official reporting of corporates. So if you go into the detail of what those corporates disclose when it comes to their own workforce, then, you know, all of a sudden you want to know, what do they report on diversity KPIs?
Michael Diegelmann:What do they disclose on social dialogue? What do they report on work-life balance or anti-discrimination? And again, if they report certain numbers, they need to be explained. And what I’ve learned, and I’m in capital markets business now for more than 25 years, The finance people and reporting people, they’re good with numbers, but they can’t put things into context. And that’s why the reporting experts and the communication experts will have to come together and explain, contextualize the information being disclosed.
Abbie Fink:So this conversation, you know, points me back to something that we regularly talk about, which is the communications professional in your organization needs to be, you know, have a seat at the table, needs to be a part of these conversations. And not only to help you, you know, externally communicate, but really to fully understand what the decisions that are being made and what you’re doing as an organization, how this is going to impact you.
Abbie Fink:And as you said, if we’re displaying diversity in our advertising, we are going to need to back that up with what we’re actually doing within the company. And so it becomes this really important role. And so, you know, what do you advise and how do you recommend, you know, the corporate communicator of the future get themselves prepared for this really critical role within the organizations that they are working for or want to work for to understand the depth of what this means?
Michael Diegelmann:Well first of all to get aware of the consequences what happens if you don’t cope with you know what’s being required and, to come back to my example of that sports company let’s say they they’re advertising big on diversity but the, diversity KPIs are very low that they could be accused of greenwashing okay and none of those companies want to have a greenwashing scandal, If you are in a production company, an automaker, and you disclose or you advertise with, oh, we use so much renewable energy.
Michael Diegelmann:But if you go into the depths of your reporting and that will be reported, your energy consumption mix, and it comes out that only 10% come from renewable energies, you will be proven a liar. And that has a consequence. It can go as fast as being liable. Give you another example. There’s a company called Oatly, and they’re producing oat milk.
Michael Diegelmann:And on the packages, they disclosed a slogan being climate neutral. They’ve been sued by an investor, and they lost, or they actually agreed, on some deal or on law, but they had to pay several millions on fines for using a logo which wasn’t clear to the stakeholders what that meant.
Michael Diegelmann:And therefore, liability is a huge issue from a legal point of view. Even worse are boycotts, okay? If you cannot guarantee that there’s no child labor in your products, okay, and if people have only an idea that you may be lying, you may be boycotted. And then you may lose your business at all. So that’s to your point. Corporate communicators have to understand the big picture and make sure that if they don’t understand what the details mean, they cannot put it into context. If they cannot put it into context, they cannot do the job of corporate communications.
Adrian McIntyre:Thanks for listening to this episode of PRGN Presents, brought to you by the Public Relations Global Network.
Abbie Fink:Episodes are also available on our website, along with more information about PRGN and our members, at prgn.com.
