You can’t manage what you can’t measure and the global sustainability/ESG landscape is finally shifting its focus from voluntary to mandatory reporting. This foundational shift rests on a myriad global regulation with various ESG disclosure requirements. For US companies, though, what does the move from voluntary to mandatory reporting mean?
What does the shift to mandatory reporting entail?
At the start of 2024, we’re still awaiting a ruling on the SEC’s climate mandate. The SEC has taken a principles-based approach to disclosure historically, but with the sustained and growing focus on ESG in the past few years, climate change and its impacts have come into full focus for investors and stakeholders alike.
Drawing on the TCFD and GHG Protocols, the SEC reporting framework will ideally provide reporters with standardized and consistent disclosure that will:
- Give investors the data needed to make informed decisions in a way that is uniform, which will allow investors and issuers to compare metrics against other organizations to equally evaluate risks and progress.
- Be audited by a third-party to ensure data is transparent and accurate, which will better empower stakeholders to hold organizations accountable for their contributions to climate change.
It should be noted that it still remains unclear what the final mandate will entail, the message is clear that this is something investors want. We saw a swift rise in popularity of TCFD and SASB because these frameworks are focused; we’re hearing investors and stakeholders want simplicity. As reporting becomes simpler, the closer we’ll get to regulatory decisions.
How can you prepare?
Articulate what’s material for your company:
Optimally, run a double material assessment. A proper ESG strategy should be grounded in an organization’s purpose, mission, and values and take into account the various stakeholder perspectives. While climate is viewed as a topic that cuts across all industries in some way, the disclosure rules dictate its materiality for an organization. As a result, organizations will likely need to prioritize climate as both a board and management topic, among other issues. You want to focus your efforts, the goal isn’t to have the most topics on your priority list, it is to focus on the most material issues so you can better manage the business.
That is, if you aren’t already. This task will help you navigate the delicate balance between meeting the expectations of stakeholders and management’s view of what is material to the business. It’s good to see where your peers and aspirational peers sit on key issues. If you don’t know where to start, GRI, TCFD and SASB are great frameworks to begin with to get familiar with the issues to start assessing. Remember: the outcome of mandatory reporting shouldn’t necessarily mean more reporting, but to be better at communicating what you’ve done and are doing.
Build a strong team internally:
This should include individuals who have a strong understanding of ESG and the topics that are material to your company, and also how to track and report on them. If you’re curious about what a successful reporting team structure looks like, check out this article.
A final thought
We can’t end this without mentioning the lead our European counterparts have with ESRS and CSRD. While American companies with significant business in Europe will have to comply, it’s important to note that tighter regulations are coming for the US, and all these frameworks have started to harmonize. Staying current on what is happening globally can indicate where the US may be headed, eventually.
Get Guidance: Consider expert help
If you find yourself struggling to understand how you can stay ahead of the curve with the latest in ESG/sustainability, consider expert help. Check out some of the stakeholder pleasing sustainability/ESG reports and impact communications Ideas On Purpose has created — and email us to get in touch if you need help with yours.
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