The Time to Create an ESG Policy is Now
Issues surrounding the climate and global warming are highly politicized in many regions, with everyone from Hollywood starlets to Presidential candidates taking up firm positions on the topic. But no matter where your personal beliefs surrounding these controversial issues happen to fall, one thing is clear: issues related to the environment and sustainability are an increasingly prominent part of the public’s dialogue and collective consciousness.
The data surrounding sustainability is compelling. Consider these metrics.
- Worldwide waste generation is expected to grow by 70% in the timeframe from 2016 to 2050.
- Approximately 30% of food is spoiled / irreparably damaged as it goes from farm to fork.
- It takes 2,400 liters of water to produce a single hamburger.
- Approximately 70% of freshwater is used for agriculture-related activities.
- Air pollution is attributed to 7 million global deaths annually.
- It’s estimated that 85% of textiles ultimately end up in landfills.
- Some experts believe that all of the world’s rainforests will be excavated by the year 2100.
These metrics are intriguing to be certain. And with these and many other factoids circulating on social media, it should be no surprise that we are seeing action at the corporate and governmental levels. One key measure is the U.S. Securities and Exchange Commission (SEC) and the Environmental, Social, and Governance (ESG) criteria. Companies are now required to submit mandatory ESG reports, underscoring the importance of creating a company ESG policy now in order to achieve and maintain full compliance.
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What is ESG and Why is ESG Reporting Important?
To appreciate the importance of creating an ESG policy and related strategy for your business, it is helpful to understand what ESG is all about and how the Environmental, Social and Governance criteria reporting requirement came to exist.
On March 4, 2021, the SEC’s ESG Division of Enforcement announced the creation of a 22-member compliance task force with individuals from the SEC’s specialized units, regional offices, and headquarters.
In a press release announcement, the Acting Deputy Director of Enforcement Kelly L. Gibson explained that the group is tasked with monitoring compliance and enforcing penalties upon companies that fail to meet the ESG reporting requirements. The ESG task force also strives to promote corporate responsibility surrounding sustainability, the environment, and climate.
Although it is still in its early days, the SEC’s ESG task force will be developing programs for companies that are found to be non-compliant or those organizations that are found to have issues with non-disclosure. The programs will reportedly be educational and remediatory in nature — rather than punitive — intended to help guide violators toward compliance and a more sustainable approach to doing business.
The SEC’s Division of Enforcement says it wants to simultaneously advocate for ESG compliance while also promoting sustainable, eco-friendly business operations amongst the nation’s companies.
While ESG reporting mandates may — at first blush — seem like yet another run-of-the-mill regulatory and compliance burden, the actual impact of a sustainable business strategy extends far deeper.
As a philosophy, ESG has taken firm root within the investment community. As a collective, the newest generation of investors is intensely focused on the environment and sustainable living. Sustainability is a deeply-ingrained component of their belief system and this extends into their business decisions.
A 2021 study conducted by Morgan Stanley revealed that 99% of investors in the millennial generation and 75% of investors overall had already made or planned to make investments with sustainability in mind. The study also found that 75% of millennials and 50% of all investors have considered social justice issues when making investment decisions.
The trend in sustainable ESG investments isn’t slowing either; it’s accelerating rapidly. According to data released by Bloomberg, $1.6 trillion in sustainable bonds were issued in 2021. As of early 2022, that figure had surpassed $4 trillion.
With metrics such as these, it is clear that sustainable investing is the path forward. This means that now is the time to develop an ESG policy. But what does an ESG policy entail?
Developing an ESG Policy for Internal and External Stakeholders
An ESG policy can and should impact virtually every aspect of your business. Sustainability must be a key consideration when developing business strategies and operational policies or procedures. But considerations must extend beyond this. ESG policies should encompass many aspects of a company’s operations, strategies, procedures and philosophy. Some of the key points of consideration may include the following.
- Recycling and repurposing
- Carbon emissions and carbon footprint
- Eco-friendly vehicle fleets
- Sustainable energy sourcing
- Health and safety policies
- Supply chain sustainability
- Charitable activities and community initiatives
- Social justice movement involvement
- Risk management strategies
- Company leadership and staff diversity
- Sustainable, eco-friendly partnerships with suppliers, fellow businesses, etc.
ESG policies are complex, comprehensive and multifaceted. In fact, ESG software, checklists and frameworks now exist to guide the process of developing an ESG policy and maintaining compliance. ESG software is also extremely useful for collecting and analyzing sustainability-related data points. A data-driven approach to ESG compliance can be very compelling since savvy sustainability-focused investors are often “numbers people” who place great emphasis on hard facts and figures that support a company’s claims.
In an attempt to achieve and maintain compliance, companies are establishing internal ESG committees that meet periodically to develop and revisit the organization’s sustainability. The most effective ESG task forces tend to be comprised of individuals from every department and division. This allows you to gather insights from individuals with a diverse array of viewpoints.
Public ESG Disclosure and Your Company ESG Strategy
Developing and implementing a company ESG policy is just the start of the process. In order to enjoy the full benefit of these efforts toward greater sustainability, an organization must disclose their efforts publicly. This is one corporate initiative that should be shared with the world so prospective investors, consumers, and the public as a whole will be aware of your organization’s eco-friendly stance. This can be achieved in a few different ways.
- Issue press releases on the development of your new ESG policy and any new initiatives that you roll out down the road.
- Include information about your ESG policy and strategy in content and materials that are targeted to prospective investors.
- Integrate information on your ESG strategy in your company mission page and other key areas of your website and marketing materials.
- When revamping product packaging, take the opportunity to promote sustainability. For example, if your packaging is created from 75% recycled materials, indicate this fact on the label. You can even include graphics to promote better sustainability, like a branded “recycle me” icon on a bottle.
- Promote sustainability in general and specifically highlight your company’s ESG-related activities or policies on your company’s social media accounts. Eco-conscious investors are — as a collective — highly active on social media, making this a great way to connect with these prospective investors.
Navigating ESG policy creation is a challenge due to the complex, multifaceted nature of sustainability. A well-crafted ESG policy will do more than attract prospective investors and even new eco-conscious customers; it will also place your business in a better position in terms of GRC and risk management. At iTech, this is one of our areas of specialty so we invite you to reach out today to discuss ESG policy development and how we can help you reduce your risk while improving your bottom line.