In recent years, Environmental, Social, and Governance (ESG) considerations have become increasingly important for credit unions. As member-owned financial organizations rooted in community values, credit unions are uniquely positioned to embrace ESG principles as part of their commitment to responsible banking practices.
Whether your organization is new to the world of ESG or you’re just looking to deepen your understanding, this article aims to provide practical advice and actionable strategies for credit unions looking to integrate ESG into their operations.
Q: Why do we care about this?
A: Regulators are moving forward with ESG measurements, and the “trickle-down” effect will happen. The SEC believes companies’ ESG statements can move stock prices, issuing regulations on “E” reporting in April 2024. The European Union has enacted the Corporate Sustainability Reporting Directive (CSRD) with 84 key performance indicators and almost 1,100 ESG metrics. California has enacted its “Climate Accountability Package” of regulations. The International Sustainability Standards Board is drafting broad standards for measuring and reporting ESG activity.
Q: Why is a CPA talking about ESG?
A: Regulators and stakeholders seek a consistent framework for “accounting for” ESG activities, aligning with existing financial accounting and reporting frameworks. The CPA profession is heavily involved in developing ESG frameworks, positioning CPAs for an ongoing role in ESG reporting.
Q: What do we actually have to do?
A: Technically, nothing is required with ESG right now, but stakeholder expectations are growing. Stakeholder interest and scrutiny in banking are increasing, so being prepared for questions and commentary is important. Getting started involves listening to stakeholders, communicating with them, taking stock of current ESG-related activities, thinking about impact, and tracking and reporting results.
As you determine how ESG principles fit into the framework of your credit union, consider the below:
- Listen. Don’t assume you know what ESG “means” in your community or to the stakeholders in your Credit Union. Identify those stakeholders and listen.
- Communicate with stakeholders. Frequent and consistent communication is vitally important to gather information and understand progress. Don’t just communicate for the moment, establish sustainable communication channels.
- Take stock of what you’re already doing. Chances are high that your credit union is already doing things relevant to ESG.
- Think about the impact. What is the impact of the things you are already doing and what other impacts should you aspire to achieve? Some ESG initiatives have risks and costs and those should be understood. It’s ok to start small and go slow.
- Track and report results. How to report ESG activities is a developing area but gathering the data is a first step.
Credit unions choosing to avoid ESG conversations risk being behind when ESG inevitably does become a common expectation of all organizations. Taking even small steps to introduce the concept in the short term could pay big dividends later.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
