ESG for newly public companies

ESG has become a business imperative for newly public companies—impacting financial resilience, growth, and investor confidence. Evolving stakeholder expectations and sustainability-related reporting regulations are now critical to a company’s successful initial public offering (IPO) and overall performance.

Capital markets readiness efforts have become inextricably connected with ESG principles. As investors realign their portfolios to support a sustainable future, companies preparing for IPOs must embed a solid ESG strategy into their capital markets readiness plan. The following key considerations can help lay the foundation.

Incorporating ESG into business strategy: Developing an effective ESG strategy begins with three key elements—mapping the material ESG topics that are most impactful to the business; the vision of the corporate ESG profile; and operating model enhancements to address material sustainability topics.

Establishing robust corporate governance: Newly public companies must have strong mechanisms for corporate oversight to measure and assess their progress on corporate ESG commitments and KPIs, such as board diversity and decarbonization targets. Transparency with investors about their progress can bolster trust and provide a competitive edge.

Embedding ESG risks in the enterprise risk management function: Private companies on the IPO path must develop a comprehensive risk management function that has the expertise and experience to identify, assess, and measure sustainability-related risks. Harnessing AI-driven insights provides transparent, quantifiable data to key stakeholders on the company’s ability to monitor and mitigate risks while ensuring accountability across the board.

Preparing investor-grade ESG disclosures: Evolving ESG reporting requirements mean companies must stay up to date on global regulatory reporting developments. Today, a trend has emerged whereby ESG-related themes are incorporated into various sections of an initial registration statement, including the “Risk Factors” section, particularly with over a third of Form S-1s filed with the SEC in 2022 (on a sample basis) referencing climate-related risks.

Building a strategic commitment to sustainability is crucial for companies preparing to flourish in the public markets. IPO-ready companies that meet ESG criteria may be able to leverage new sources of capital, including avenues for financing debt and lowering corporate financing costs.

While integrating ESG metrics and data into disclosures can enhance insights and decision-making, it is also critical to conform to the IPO timeframe for ESG-related disclosures. Utilizing AI-enabled analytics and insights allows companies to enhance ESG reporting speed and accuracy, further driving faster outcomes in the capital market.