Today – Earth Day – is a great time for businesses to consider their impact on our planet, one of the main tenets of ESG (Environmental, Social, and Governance) efforts. As we’ve written about in the past, the U.S. is on the path to solidifying regulatory requirements for environmental and climate related reporting, but federal level standards are still far from being final. Currently the SEC’s final rules on climate-related disclosure are paused as ongoing legal challenges are being consolidated and addressed in the courts. One state (California) does have laws in place requiring certain entities operating there report their emissions information, and it is anticipated that additional states will follow suit in the future.
We routinely hear from management teams who are eager to “do something” to move their organization forward on ESG compliance and positioning. However, companies currently implementing ESG related requirements, reports, or vendor disclosures, may be jumping the gun during this “wait-and-see” period. Implementing policies and procedures before clear guidance is issued may result in unnecessary work that must be redone or adjusted once disclosure rules and regulations are finalized. That being said, there are things that U.S. companies can and should be thinking about now as it relates to their environmental impacts and efforts.
- Risk Mitigation: Incorporating ESG principles helps companies anticipate and mitigate environmental risks before they escalate into financial or reputational damage. Proactive risk management through increased environmental efforts and awareness can help safeguard against these unforeseen costs.
- Investor Attraction and Retention: Investors are increasingly gravitating towards companies with environmentally sustainable practices, enhancing market valuation and investor stability.
- Brand Reputation and Customer Loyalty: Customers continually show a preference to engage with brands that prioritize sustainability. By adopting environmental measures, companies boost their brand image, foster customer loyalty, and may even tap into new market segments.
- Employee Engagement and Corporate Culture: Companies that embrace a culture that values environmental sustainability enhance employee morale and help to attract top talent that may be eager to work for a responsible employer.
While there is work to be done, the path to a fully integrated ESG plan is complex and final regulations and guidance will take time. There are efforts, including resource allocation and organizational changes, that can help drive these initial efforts as the litigation around the final rules plays out in the courts. This Earth Day, U.S. companies should pause, consider what can be done now, and keep in mind that final reports, standards, and accountability are not final at the federal level… yet.
If you need further guidance or have any questions, 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.
