• February 26, 2024

Taking Ownership of ESG: All Eyes on Disclosure

By Marjella Lecourt-Alma, CEO and co-founder of Datamaran

Business leaders today face the key challenge of demonstrating that they take seriously a wider range of risks and opportunities, including environmental, social and corporate governance (ESG). We are now seeing this in the 2021 proxy season as more and more companies are responding to shareholder proposals focusing on ESG.

Shareholders want to learn more about how companies impact and consider the broader ecosystem in which they operate, and they want this information to be presented clearly and consistently – with data to back it up.

This increased focus on ESG is also reflected in politics. With the Biden administration in power and Gary Gensler re-elected as chairman of the SEC, there is growing emphasis on transparency – and the underlying processes to achieve this – to meet these growing expectations.

These developments confirm how the markets have fully accepted ESG as business critical.

Now is the time for business leaders, especially CEOs, CFOs and board members, to invest in integrating these external risks and opportunities into core business processes, including risk management, annual reporting and board oversight, and move from reactive to proactive.

Three wake-up calls from 2020

The events of 2020 brought Risks related to public health, climate change and diversity, equity and inclusion (DE & I) to the top of the public consciousness. Business leaders have now become aware of how quickly the risk landscape is changing and the importance of broadening their risk awareness through the use of a wider lens.

The way some of the world’s largest corporations approached the events of 2020 shows how ill-prepared they were because they lacked the processes to monitor and respond to the changing risk landscape. This is especially true for companies in the US, where regulatory pressure has previously been low.

Improving the ante for ESG reporting: The US is pushing ahead

The US lags far behind the EU and other countries in annual sustainability reporting initiatives. This is one reason the current administration is pushing for more transparency to ultimately help U.S. markets keep up with their global counterparts and promote globalization.

According to recent announcements by the SEC, its new Climate and ESG Task Force, led by Kelly L. Gibson, Assistant Assistant Director of Enforcement for the SEC, will focus on “identifying material loopholes or misrepresentation in the disclosure of climate risk by emitters under existing rules identify, review “disclosure and compliance issues related to ESG strategies by investment advisors and funds” and assess whistleblower complaints related to ESG issues.

This change in tone and action is a culmination of developments in recent years and is exacerbated by the events of 2020. None of these political developments are new; It is the sense of urgency that is still not enough, that is newer. The past year has only shown that companies do not have a process to proactively address these risks. It became more obvious, but it’s not surprising.

The ROI for transparency: beyond reporting

Demanding more consistent and data-driven reporting of ESG risks and opportunities from companies is a big job, but just like financial reporting, it’s ultimately good for business. In addition, it creates both short-term and long-term value for the markets.

With the increasing scrutiny of ESG practices, it is best to be ahead of the curve in adopting transparent reporting practices rather than stepping in later when regulation hits tough – and it will be.

In the short term, this ensures that companies can lower their costs more easily, use the trend interest of consumers to support authentic companies and attract the best talent and business partners.

In the long term, companies can build better relationships with government agencies that provide access to capital and resources, eliminate invisible environmental impacts, improve efficiency, and retain the best talent and business partners.

To take advantage of these benefits, ESG must be removed from its traditional silo, in which the associated risks and opportunities are inconsistently assessed, reported separately and monitored by an often isolated team of experts. Now is the time for business leaders to invest in the disappearance of “ESG” in common business processes to run business as usual.

How can business leaders achieve this?

Take Responsibility: What We Can Expect from Business

It comes down to investing in closer monitoring of ESG risks and opportunities. We are seeing a serious change within organizations in the way these risks are identified, assessed and monitored, and who is internally involved in this process.

In particular, we see that business leaders are now:

  • Perform risk assessments more continuously with the support of technology to better respond to changing market and regulatory developments;
  • Inclusion of external data in decision-making to gain the knowledge needed to effectively mitigate risks and take advantage of opportunities early on; and
  • Establish Executive Governance Committees that meet regularly – at least quarterly – to monitor changing and emerging trends, involving the CEO, CFO, CRO and Chief Legal Counsel.

Ultimately, it’s about making sure you know and understand how ESG is affecting your business, and most importantly, how you can get the most out of your business to solve some of the world’s most complex challenges. From there, of course, you will attract the right talent, the right capital and the right partners.

About the author:

Marjella Lecourt-Alma is the managing director and co-founder of Datamaran – the market leader in external risk management. Trusted by blue chip companies and global partners, it is the only software in the world that supports a fully automated and data-driven business process for identifying and monitoring external risks and opportunities, including ESG. Marjella leads a diverse global team of ESG finance, legal and risk management experts, as well as data scientists and technology professionals, and is recognized worldwide as a thought leader and innovator.

The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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