Moving from Voluntary to Mandatory Reporting
The global sustainability/ESG landscape is starting to shift its focus from voluntary to mandatory reporting. This foundational move rests on myriad global regulations with various ESG disclosure requirements. For US companies, though, the SEC rule is top of mind. What does the move from voluntary to mandatory reporting mean?
What does the shift to mandatory reporting entail?
The SEC focused on climate-related disclosures that are financially material. Drawing on the TCFD and GHG Protocols, the SEC disclosure requirements will provide standardized and consistent disclosure, within financial statements, 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.
There was a swift rise in popularity of TCFD and SASB because these frameworks are focused and the SEC is aligned. Investors and stakeholders want simplicity, and comparability. As reporting becomes standardized, the burdens should decrease. But, US companies that also fall under the more wide-ranging CSRD requirements in the EU have more work to do.
How can you prepare?
Articulate what’s material for your company:
Optimally, run a double materiality 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.
Begin benchmarking:
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, and ISSB is fast making inroads. While American companies with significant business in Europe will have to comply, it’s important to note that more regulations may come for the US, and “peer pressure” may mean continued voluntary reporting. Happily, interoperability is top of mind, and many of the leading frameworks have begin to harmonize. Staying current on what is happening globally can indicate where the US may be headed, eventually.
Ideas On Purpose Can Help
If you find yourself struggling to understand how you can stay ahead of the curve, or even keep pace with peers, on the latest in ESG/sustainability trends, consider expert help. Check out some of the stakeholder pleasing sustainability/ESG reports and impact communications Ideas On Purpose has created — and email us if you need help planning, strategizing or creating your next report.
March 2024
Photo by Akram Huseyn on Unsplash