Currency volatility poses major challenge to ESG reporting for multinationals — Expert

A Financial Service Professional, Tolulope Sopelola has said that currency risk is becoming a critical factor in Environmental, Social, and Governance (ESG) investments, especially for multinational companies operating in diverse markets.

She explained that fluctuating exchange rates are affecting the valuation of ESG-related investments, project costs, and the accuracy of financial reporting—an essential element of transparent ESG disclosures.

Speaking in an interview with our correspondent yesterday, Tolulope emphasized the importance of portfolio diversification to mitigate the effects of currency volatility.

“Currency risk can significantly impact ESG investment and reporting, particularly for multinational companies with diverse operations. Fluctuations in exchange rates can affect the valuation of ESG-related investments, project costs, and the accuracy of financial reporting,” she said.

To address this issue, she suggested that companies should implement hedging strategies, maintain diversified portfolios, and ensure that ESG disclosures accurately reflect the financial implications of currency volatility.

Tolulope also pointed out that multinational corporations face the challenging task of aligning global ESG standards with local regulations.

“Multinational companies face challenges such as aligning global ESG standards with varying local regulations, managing the high costs of compliance, and ensuring consistent ESG data across different jurisdictions. Additionally, companies must navigate complex supply chains and operational footprints, making it difficult to gather accurate ESG data. These challenges are compounded by the need to integrate ESG risks into financial reporting while managing other global economic factors like FX volatility and inflation,” she explained.

However, she noted that in the future, ESG reporting will likely see more stringent regulatory requirements.

“Future trends in ESG reporting will likely include more stringent regulatory requirements, greater integration of ESG factors into financial statements, and the use of advanced technologies for data accuracy and transparency.

“Globally, we can expect increased pressure on companies to demonstrate real progress on ESG initiatives, more detailed and mandatory disclosures, and a stronger focus on social factors like labour rights and community impact. Additionally, the interplay between ESG reporting and economic factors like inflation and currency fluctuations will become increasingly important,” Tolulope added.

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