Why the SEC’s New ESG Task Force Makes Managing ESG RIsks Even More Important
The U.S. Securities and Exchange Commission (SEC) and the Environmental, Social, and Governance (ESG) Division of Enforcement announced that they would be creating a 22-person task force composed of members from the federal organization’s regional offices, headquarters and “specialized units.”
The task force’s objective is to monitor climate- and ESG-related issues and companies’ compliance with sustainability regulations surrounding the climate and ESG factors. The 22-member SEC ESG task force will be spearheaded by Acting Deputy Director of Enforcement Kelly L. Gibson.
According to an SEC press release on the formation of the ESG task force, the group was created to promote corporate responsibility in the area of ESG sustainability and climate. One of the stated goals of the ESG task force is to monitor for compliance in addition to developing programs that will address issues of non-compliance and non-disclosure.
The SEC’s Division of Enforcement will be hosting remediation programs for violators, effectively providing companies with the insight they need to make eco-conscious and sustainable business decisions. The objective is to promote ESG compliance in a way that drives eco-consciousness. It’s hoped that these initiatives will alter an organization’s behavior and operations for the better by driving companies to better manage their ESG risks and maintain compliance in a way that provides stakeholders with a sense of confidence in the business.
What are ESG Factors and What is the SEC’s Role?
The SEC’s ESG factors were developed with three key points in mind. The goal was to drive a sense of sustainability and environmental responsibility among businesses.
By developing the three-point criteria, the SEC sought to promote eco-consciousness among organizations by requiring documentation and reporting on how a business and its operations impact three key areas of sustainability.
Environmental – Society’s focus on energy emissions, energy efficiency and climate change — among other issues — prompted the SEC to include environment-related factors as one of the three points of ESG evaluation. Violating one of the eco-friendly federal laws such as the Clean Air Act (CAA,) the Clean Water Act (CWA,) or the Atomic Energy Act (AEC,) may lead to a poor ESG score.
Social – Social factors represent a key consideration for the ESG task force. An organization that is associated with adverse social impacts such as child or forced labor, factory farming, or dangerous work environments can lead to the development of a negative relationship with the surrounding community. The presence of one or more of these (or other) social factors may lead to a negative social score.
Governance – In terms of governance, organizations are required to gather data and metrics that reflect the company’s impact on sustainability. This operational data ought to resonate with prospective sustainability-focused investors who are keen to learn more about whether a company’s values, operations, and mission align with their own.
“Companies are required to provide reports that clearly indicate how an organization’s operations have impacted the climate, environment and global sustainability as a whole,” according to the SEC.
“The ESG standards are the central factors that measure the ethical impact and sustainability of investment in a company,” acting SEC Chair Allison Herren Lee said in a 2021 SEC.gov press release.
The Mission of the SEC ESG Task Force
The SEC’s ESG task force was created with a three-pronged mission in mind.
Identify Companies That Violate ESG Guidelines – The SEC-issued ESG guidelines provide companies with sustainability directives for good corporate responsibility. These guidelines apply to practices and disclosure alike. The SEC task force strives to identify reporting omissions and errors that may pose a threat to eco-conscious investors.
Identify and Develop Programs to Drive Corporate Sustainability – The ESG task force members will “proactively identify ESG-related misconduct by coordinating the effective use of Division of Enforcement resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations.”
Develop Initiatives to Promote Compliance With Climate-Related and ESG Regulations – The SEC task force will develop programs and initiatives designed to address practices that violate climate- and ESG-related rules in addition to addressing non-compliance such as disclosure/reporting violations.
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“Climate risks and sustainability are critical issues for the investing public and our capital markets,” acting SEC Chair Lee indicated. “The task force announced today will play an important role in enhancing and coordinating the efforts of the Division of Enforcement, the Office of the Whistleblower, and other parts of the agency to bolster the efforts of the Commission as a whole on these vital matters.”
ESG Task Force Goals – Promoting Sustainability and Climate-Friendly Operations
The SEC collects data on ESG factors to provide potential investors with a sense of how eco-friendly an organization’s operations happen to be. This, in turn, offers potential investors key insights on whether a decision to invest in a company will align with their lifestyle and beliefs surrounding sustainability and the environment.
The potential impacts of being ordered to a task force-ordered non-compliance initiative underscores the importance of managing ESG risks.
At iTech, our team is committed to providing sustainability-focused organizations with the tools they need to collect and report data that may come under scrutiny from the SEC’s ESG Task Force. Data collection is an important aspect of managing your ESG risks. An enterprise resource planning (ERP) software platform represents a valuable tool for gathering the information and data that a company needs to document its eco-friendly and sustainability-focused operations. In turn, this places an organization in a solid position to generate reports that will ensure full compliance with the SEC’s ESG reporting mandates.
If your company is facing challenges documenting and collecting data in a way that aligns with the SEC’s ESG task force reporting requirements, contact iTech. Our tech team is here to help you manage your ESG risks and provide a solution that will allow your business to achieve and maintain compliance with the SEC’s ESG reporting mandates.