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ESG: Fad or Fixed?

July 21, 2023

Environmental, social, and corporate governance (ESG) is not a new topic, but headlines abound. More than 90% of S&P 500s voluntarily publish ESG reports in some form. President Biden’s first veto was deployed on an ESG matter. And currently, all eyes are on the Securities and Exchange Commission (SEC) which is set to release its climate risk disclosure rule sometime in the fall of 2023.

Critics of ESG say it’s a fad, a distraction, not feasible or measurable, and difficult to link to financial performance. All of that might lead to a “wall of…resistance” to the SEC rule, including at the state level. ESG proponents say that there’s a social license for companies to build and preserve, beyond the business mandate to generate value.

The Scout motto applies: Be prepared

CFOs may feel in limbo trying to prepare for SEC rules. It’s also hard to know how court challenges, state-level legislation, or the possibility of a Republican administration in the next election would impact ESG rules and regs. A lot is in flux.

No matter where you stand on the politics of ESG, wise CFOs will plan ahead. Run strategies – if you haven’t already – with operations and Enterprise Risk Management to voluntarily disclose in-house greenhouse gas emissions, as well as those within the supply chain. Such analysis is especially advisable if you hold a $7.5m+ U.S. government contract or if you plan to have a footprint in the EU where disclosures are strict. Beyond that, consider creating a cross-functional ESG controller role on the org chart (yes, it’s a thing!), and put that weekly coffee on lock.

 

“The companies on the forefront are those who have made public statements on time to achieve net zero, and now they’re staffing up to figure out how to measure their current business and [to make] a plan to achieve their goals.”
– Molly Gonzales, Senior VP and head of CFO Practice, Raines International

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