Reporting challenges
To paraphrase the management icon Peter Drucker, you can’t manage something unless you measure it. Without measurement, you can’t tell if actions are making things better or worse. Publicly traded and owned corporations are under pressure from investors to report environmental risks, and more companies are disclosing environmental and social governance (ESG) measures. However, an existing reporting challenge is due to imprecise measures and a lack of experience collecting and reporting these data.
A recent Wall Street Journal survey of corporate sustainability officers indicates that while more companies are disclosing sustainability metrics, there is confusion about the measures and a demand for uniform reporting requirements. According to Journal reporter David Breg:
“Public companies in the U.S. are increasingly disclosing sustainability information, but many say they find it a challenge to report fundamental climate data that many regulators around the globe likely will require under incoming mandatory reporting standards. Nearly two-thirds of respondents said their company was disclosing environmental, social and governance information, up from 56% in the prior year, according to the annual survey of sustainability officials that WSJ Pro conducted this spring.”
According to Wall Street Journal reporter David Breg
The SEC regulation
The U.S. Securities and Exchange Commission has been revising its proposed sustainability reporting requirements in response to a deluge of comments and has delayed issuing those requirements, once expected last spring. The political calendar includes a national election next year, which creates pressure to issue those standards this year.
There will certainly be legal challenges to whatever rule is issued, but to the extent that the rules connect environmental risk to financial risk, they are likely within the SEC’s enabling legislation. Additionally, the SEC is not the only body working on uniform sustainability metrics, according to Breg.
“Regulators around the globe are finalizing rules that would require companies to publish standardized information after years of patchy voluntary ESG reporting based on a host of frameworks. California’s governor has said he would soon sign that state’s requirements into law. The U.S. Securities and Exchange Commission’s rules are expected later this year. European regulations are already in place and many other countries are also working on standards. The International Sustainability Standards Board (ISSB) hopes its climate framework, completed this past summer, becomes the global baseline.”
SEC and Scope 3
The initial SEC rule is expected to be more limited than many of the other frameworks under development and focuses narrowly on carbon disclosure. It is likely that carbon emissions from a company’s supply chain will be omitted or optional in the final disclosure rule. However, it will likely be incorporated over time.
Sustainability integration
ESG measures do not ignore financial indicators, but are correlated with financial success. The principal concerns of a private firm remain profit, market share, and return on equity. Modern organizations recognize that they are operating on a more interconnected and warming planet, with employees who care about ESG performance. These facts require that they manage their environmental, social, and community impacts as a part of their operational and strategic routines.
Mandatory global regulations
When it comes to international regulations, companies operating globally need to understand the rules of other nations. Over 10,000 non-European companies are subject to the European Union’s new ESG reporting requirements. About a third — or over 3,000 — are U.S. corporations.
Going forward
A successful company, by definition, will learn to navigate its regulatory environment while achieving its financial goals. The growing voluntary and mandatory disclosure of sustainability metrics is taking effect due to necessary government regulation to address the climate crisis, but also in response to investor, customer, and employee demands.
Moving forward with mandatory disclosures, carbon disclosure is a critical step in carbon management. For all stakeholders involved, standardized sustainability metrics are a crucial step in managing our sustainable future.
Source: WSJ Pro Sustainable Business Survey Report 2023
Date: November 14, 2023
