Helping You Develop a Successful ESG Program
The drumbeat for increased and more standardized disclosures on environmental, social, and governance (ESG) issues has grown louder in recent months, but the path ahead is still murky. There is no one-size-fits-all ESG program because every organization faces unique issues and risks. Our team of trusted advisors has the information to help you define ESG, explain its potential effects, describe various ESG frameworks, detail reporting, and get started on building your program. Whether you are an energy company, an investment firm, or any industry in between, we have the expertise to help you navigate ESG.
It’s clear that the demand for more information is not going away; however, many key questions need resolution:
- Who will set the rules? The SEC, an existing advisory group, or a new group?
- Will it be principles-based or prescriptive guidance?
- Where should the information appear—SEC filing and audited financial statements or freestanding reports?
- Will audits or assurance be required?
The vast majority of the S&P 500 companies already voluntarily publish sustainability reports, but companies use a variety of reporting frameworks and standards. The Global Reporting Initiative (GRI) Standards, the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations are common examples, but there is no standard solution for all organizations. Ideally, a phased approach might be the best path forward to building your ESG program.
Read on to learn more about our approach or contact us to get in touch with an advisor to begin building your ESG program today.
What exactly is ESG?
Environmental – Encompasses how a company is exposed to and manages risks and opportunities related to climate, natural resource scarcity, pollution, waste, and other environmental factors, as well as a company’s impact on the environment.
Social – Comprises information about the company’s values and business relationships. For example, social topics include labor and supply chain information, product quality and safety, human capital topics such as employee health and safety, and diversity and inclusion policies and efforts.
Governance – Encompasses information about a company’s corporate governance. This could include information on the structure and diversity of the board of directors; executive compensation; critical event responsiveness; corporate resiliency; and policies and practices on lobbying, political contributions, and bribery and corruption.
If there’s any hard-and-fast rule, it’s that an ESG policy can’t be a document that gets written and then gathers dust. Investors will want to make sure that organizations are living up to the standards and practices they’ve developed. Investors are now applying similar scrutiny to ESG metrics as they do to financial metrics—scrutiny that managers need.
ESG Program Development
Phase 1: Assess
First, executive leadership must play an active role in defining what success looks like. In this phase, assessing the ESG concerns of your investors is critical, as well as identifying the risks, opportunities, and key performance indicators when selecting a reporting framework.
Phase 2: Design
As the ESG program begins to take shape, the next phase involves developing the narrative and messaging, identifying data sources, helping ensure the reliability of that data, designing the ESG report, and developing a communication plan for all stakeholders, e.g., investors, customers, employees, regulators, and the media. Once that’s complete, then it’s time to help ensure the transparency of the reporting and look for technology solutions that facilitate reporting.
Phase 3: Implement
Next, it’s time to implement the messaging and a communication plan. Remember, investors, customers, employees, regulators, and the media represent your stakeholders. This is the part where advanced planning and intentional design of the ESG program can pay dividends.
Phase 4: Monitor
In the last phase, measuring and refining the reporting and messaging with feedback from stakeholders is critical. It requires constant dialogue to help ensure the plan is working as it should. Given the ambiguous nature of measuring ESG results and a growing appetite for third-party assurances from independent accounting firms to validate the efforts, this phase requires very intentional monitoring (this is not the time for a “watching from afar” approach).
ESG Ratings Analysis
AM Best, S&P 500, Moody’s, and Fitch Ratings have all added ESG considerations in their rating methodologies. We can help evaluate how your ratings are affected by ESG considerations. Our advisors can help identify opportunities to improve ESG disclosures, policies, and programs in ways that are most effective in improving ratings.
ESG Reporting Systems & Controls
We can help establish the same level of rigor to the measurement and reporting of ESG information as is applied to financial reporting. With significant investor interest in reported ESG information, the credibility and reliability of that information are essential. We can work across your organization to help assess data source types, establish reporting policies, develop and document internal controls for data gathering, and report processes to help provide accuracy and completeness. We also can perform a readiness assessment to help prepare for assurance.
ESG Executive Education
Our ESG professionals can provide expertise to executives and boards to help address the ESG issues that are unique to your sector and organization. We can help define ESG, explain what is driving the interest in ESG, and discuss its potential effects. We also can describe the various ESG frameworks, detail reporting, and how to build effective ESG programs.
ESG Investment Processes
We can help establish policies and procedures to incorporate ESG issues into investment analysis and decision-making processes. As ESG factors have increasingly been found to have a material impact on corporations’ financial performance, there is an increasing need for organizations to incorporate these factors into the management of their investments. We can help establish roles and responsibilities and approaches to ESG research and assist with incorporating ESG factors into investment strategies. We also can help develop ownership policies and practices to actively engage with investees on ESG topics.
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