The SEC is on the cusp of rolling out a series of mandatory ESG (Environmental, Social, and Governance) requirements for corporations. How can you navigate these new waters and get ahead?
In its current state, ESG reporting is a fuzzy science. Due to the lack of any strong contender for standardization, it is still commonplace for organizations to measure ESG progress on metrics of their choosing – for better or for worse – with little oversight to ensure reports are accurate. In crafting these new regulations meant to standardize and regulate ESG metrics and their effectiveness towards results, the SEC is setting a new precedent in ESG reporting. Actions like this underscore the growing attention ESG goals receive in today’s market, from consumers and investors alike. We are currently on the cusp of corporations being held accountable to ever higher standards, thereby raising the bar on the importance of ESG compliance.
What it means for Business
The SEC’s regulations are designed to standardize the criteria companies use to measure ESG and CSR initiatives and will make it possible for investors, employees, and consumers to assess the effectiveness of organizations towards their ESG goals.
This entrance of the SEC regulations speaks to a larger change in the corporate zeitgeist. ESG can no longer be considered an operation of the marketing team, meant to produce numbers that look good in an annual report. Rather, it’s turning into a central tenet of value in a company, a signal of business health. Lack of compliance or poor ESG reports is already perceived as greenwashing, and the SEC is clamping down on the practice.
On the bright side, when companies successfully execute CSR campaigns and uphold their promises, they prosper. 2021 saw an enormous increase in investor demand for ESG-related and ESG-driven portfolios. A recent PwC investor survey revealed that 79% of respondents agreed ESG reporting was an important factor in their investment decisions. In the same survey, 49% of respondents said they were willing to divest from companies not taking significant ESG action. Now is the time for companies to take a serious and tactical approach to executing ESG commitments.
How Companies Can Use This Opportunity
Right now, corporations are in dire need to evolve their thinking and put ESG at the forefront of their business goals, not treat it as an afterthought. Stakeholders are far savvier in evaluating the authenticity corporations treat their commitments. But beyond stakeholders, it’s consumers too. Sustainability matters to people, especially younger generations who are now entering the workforce for the first time. In the coming years, they will play a significant role in determining which companies thrive, and which are left behind.
The solution companies can already implement today is to better unify and communicate accomplishments, rather than limit them to an annual report or dilute them across siloed departments within their organization. Give people the option to take action, and turn successes into movements. Invite key stakeholders and consumers to engage in the initiatives and the solutions that drive them.