How to Manage ESG Compliance
Environmental, Social, and Governance (ESG) is becoming an increasingly critical component of the modern company’s business strategy. In fact, ESG-related reports are now deemed mandatory by the U.S. Securities and Exchange Commission (SEC) — the agency that initially developed the ESG criteria. The SEC has even developed a task force to address cases of non-compliance. This has compelled companies of all sizes and in all business, sectors to consider ESG more aggressively as they develop business policies and procedures.
SEC task force-issued penalties aside, ESG is becoming increasingly important for companies that are seeking investments; the same is also true of non-profit organizations that seek donations. Eco-conscious and socially-conscious investors (and charitable donors) are increasingly gravitating toward organizations that share their values, priorities and viewpoints concerning issues such as sustainability, the environment, social justice movements and beyond. The data supports this claim too. Consider these metrics.
- In the U.S., actively managed ESG fund assets hit the $357 billion mark in December 2021. This reflects an increase over the $236 billion that was recorded just one year prior.
- U.S.-based sustainable investment funds pulled in almost $70 billion in new assets in 2021.
- The total number of U.S.-based ESG funds grew from 392 in December 2020 to 584 in December 2021.
- The total number of ESG funds worldwide grew from 4,153 in December 2020 to 5,932 in December 2021.
The numbers clearly illustrate the rising popularity of pro-ESG philosophies amongst investors, so it should be no surprise that now is the time that many organizations are taking action to increase and showcase their sustainability.
A Multi-Faceted Approach to Managing ESG Compliance
ESG compliance is now a vital consideration for every organization’s business strategy, from an operational perspective to a marketing perspective and beyond. This all-encompassing approach is necessary because companies are required to compile reports with data pulled from a diverse array of sources. This means you must be prepared to collect, store and retrieve data from every department, division and project.
The SEC’s Environmental, Social and Governance (ESG) criteria was designed to provide insights using data that has been directly correlated to a company’s sustainability and conduct risks.
Making the Most of Your ESG Data
The savviest organizations are leveraging their ESG data to gain maximum benefit by actively spreading the word about their sustainable, eco-friendly and socially-conscious stance. This is an important aspect of an ESG strategy since you really want to educate prospective investors about the sustainable measures and initiatives that your organization is pursuing.
Spreading the word about your ESG compliance and sustainability initiatives can be achieved through several avenues.
- Investor information packets
- Digital marketing materials
- Website content
- Company mission statement
- Printed marketing materials
- Company social media accounts
- In-person speaking engagements
- Event sponsorship
- Packaging/label graphics
These are just a few of the opportunities for spreading the word about a company’s stance surrounding ESG issues. The exact and ideal mechanism for dispersing this information will vary according to the exact nature of the business.
Manage ESG Compliance With a Solid Sustainability Strategy
A well-developed ESG compliance strategy is a vital component of a company’s overall business approach. Forming that strategy is easier said than done, of course, due to the comprehensive nature of the ESG criteria. The three prongs or factors are as follows.
- Environmental factors focus on climate change, energy efficiency and emissions, and other business impacts on the environment. Companies should look at their compliance with environmental-related legislation such as the Clean Water Act (CWA) and the Clean Air Act (CAA.)
- Social factors focus on the company’s impact on society, from the safety of the company’s work environments to the ethics of business practices such as factory farming. An organization’s relationship with and reputation within the surrounding community is an important consideration for this ESG factor.
- Governance factors focus on the initiatives a company uses to gather the data related to ESG factors. Transparency and accuracy are essential as this data provides greater confidence to investors and others who are evaluating a company’s ESG compliance.
What Areas of a Business Are Affected by ESG Compliance?
To develop an effective ESG compliance strategy, business leaders must identify all of the areas within their organization that are going to be impacted by those new policies, procedures, and philosophies. The ESG impact range is quite diverse, encompassing some of the following areas.
- Carbon footprint and de-carbonization efforts
- Sustainable energy sourcing
- Health and safety policies
- Company culture
- Diversity, equity, and inclusion (DEI) initiatives
- Data management practices
- Risk management policies
- Tax strategies
- Supply chain and logistics sustainability
- Company diversity
- Social justice movement support
- Community involvement
- Charitable activities
- Partnerships/affiliations with ESG-friendly organizations, suppliers, etc.
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Environmental, social and governance issues hold the potential to impact virtually any and every aspect of a business, making it extremely important to identify and monitor all of the aforementioned areas.
Additional Tips to Manage ESG Compliance
Once you’ve gained a full understanding of how ESG compliance affects your company and a solid ESG strategy is developed, there are some additional measures you will need to take in order to ensure compliance. Consider these tips to manage ESG compliance more effectively.
- Develop a company ESG task force – Compose an ESG task force that can meet periodically to address compliance and revisit the company’s ESG policies. The group should include representatives from all divisions of the organization. This ensures a complete and more accurate view of the company’s ESG compliance as a whole.
- Address ESG compliance regularly – ESG is part of an ever-changing landscape. A static approach simply doesn’t work well when you are dealing with such a dynamic concept. For this reason, it is important that your company task force addresses the aforementioned factors routinely — on a quarterly basis, at a minimum — to keep the company compliant, ESG-friendly, and attractive to investors.
- Develop policies to address and monitor ESG compliance issues – When a problem inevitably arises, you will need to have an established protocol for handling and resolving that issue. ESG compliance protocol development should be amongst the very first things a company task force addresses. This protocol should have clear steps for resolving these problems and monitoring the progress of that resolution.
- Include PR in your ESG strategy – Public relations is an important part of ESG management since you are dealing with prospective investors and one of the three factors involves society as a whole. Develop a PR plan for addressing any ESG compliance issues. A company may invest a significant amount of time and effort in resolving a problem; it is important that you share that success.
ESG compliance is complex and it can affect more than just operations and policies. ESG will impact many aspects of an organization’s digital infrastructure too. At iTech, we have extensive experience in the realm of ESG compliance, especially as it relates to your technology. We invite you to reach out to iTech today to discuss your compliance and how our ESG management solutions can benefit your organization.