Organizations of all types are increasingly preparing for ESG compliance. The EU and the U.S. Securities and Exchange Commission both are poised to ramp up Environmental, Social, and Governance oversight. Add to that the increasing scrutiny from investors, shareholders, and customers seeking to do business with companies that match their values.
The issue is, there’s no current consensus on what should be measured or how it should be measured. Regardless, organizations must address these matters now, as ESG standards take on more importance—and permanence— across the globe.
ESG Regulations Are Coming
What began years ago as “socially responsible investing,” where investors began scrutinizing and restricting purchases of so-called “sin stock”— typically manufacturers of alcohol, tobacco, gambling, or weapons—has evolved into something much bigger.
In 2006, the United Nations released the Principles for Responsible Investment, which broadened sin stocks to other issues such as the environment, sustainability, and social justice. Since then, the ESG movement has gained steam. In 2020, COVID-19 ignited awareness of social and racial justice. This, combined with a new presidential agenda in the U.S. created a perfect storm that has suddenly pushed ESG and corporate responsibility to the forefront.
As part of its rulemaking agenda for the coming year, the U.S. Securities and Exchange Commission (SEC) made sure that ESG compliance was its top priority. They specifically cited “Disclosure relating to climate risk, human capital, including workforce diversity and corporate board diversity, and cybersecurity risk.”
SEC Chairman, Gary Gensler, also directed staff to recommend how companies might disclose emissions from a company’s own operations, energy and natural resource use, and other parts of the value chain, including Scope 1, Scope 2, and Scope 3.
Other regulatory bodies, such as the Office of the Comptroller of the Currency and the Federal Reserve, have also emphasized various ESG compliance aspects.
In the UN, more and more corporations and investors are looking to Sustainable Development Goals (SDGs) for guidance. All 193 member countries of the UN have adopted SDGs as a roadmap for companies to disclose their social and environmental impact.
There are 17 SDG goals that together include 231 separate indicators meant to address poverty, hunger, gender equality, climate change, promoting decent jobs, economic growth, and more. And when investment firms use SDG, they mean business. They want hard, high-quality data that shows proof of ESG commitments, and they will proudly pass on firms that fall short on SDG reporting.
ESG Compliance Needs a Captain to Its Ship
There are many ESG-related frameworks. Some of the most common are the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), International Integrated Reporting Council (IIRC), The Climate Disclosure Standards Board (CDSB), and Task Force on Climate-Related Financial Disclosures (TCFD).
Unfortunately, there is no one all-encompassing body that offers guidance on each of the categories of an integrated ESG program. Each organization has its own focus and agenda. As a result, many companies combine pieces of several frameworks to build their own reporting structure, which they hope appeases stakeholders.
To manage that process, organizations are leaning heavily on their compliance departments to captain the ESG ship. This makes sense since corporate compliance primarily a governance function. It is ready-suited to provide structure and controls to enable consistent, repeatable processes for managing and reporting critical ESG data – including the top-to-bottom supply chain.
Every Captain Needs a Map
There is strong support for ESG compliance across stakeholders. However, even as companies continue to work on ESG strategies, they often find themselves feeling stranded without a map.
If you don’t have the technology systems in place to gather information in an efficient, systematic way, the demands of ESG disclosures will be difficult to meet. Siloed systems also make data consistency a challenge, not to mention real-time reporting and analytics. When you can only see your slice of the horizon, it’s hard for everyone to row in one direction.
Integrated ESG technology can provide a much-needed clear line of sight to the destination. The right software makes it easy to collect all ESG-related data in one place. Compliance teams can use that data to monitor ESG performance across the company and the entire supply chain – all the way down to products and materials. You’ll know which suppliers score best, so you can direct – or redirect – your resources appropriately.
Integrated ESG and risk management technology also creates a single data repository accessible to all who need it. This added transparency helps build collaboration, credibility, and support both inside and outside the organization.
ESG compliance today may be more about telling your story and holding yourself accountable than avoiding fines and penalties. But regulation is coming. Don’t wait to get on board.