Seven ways ESG reporting is already here

Or even in select US cities

Did you know several states and major cities have their own ESG and sustainability rules? New York City Local Law 97 requires most buildings over 25,000 square feet to meet specific energy efficiency and greenhouse gas emissions limits by 2024, with stricter limits slated for 2030.⁴ And since 2014, Cambridge, Massachusetts has required large building owners to track and report on annual energy use to the city, which then discloses the data to the public.⁵ Climate action in these and so many other cities means companies should take a close look at the reporting requirements everywhere they operate. It’s no longer enough to stay apprised of ESG rules on the national scale; ESG has gone global and hyperlocal.

You plan to go public

So, you are a private company with aspirations to list on a US stock exchange one day. Under the SEC’s proposed ruling, climate-related disclosures would be required in registration statements, including those related to initial public offerings.⁶ This provision is particularly relevant for companies in the private equity space, where going public is a common exit strategy. This is just one of several ways private companies may find themselves indirectly subject to ESG rules. And, once you are a public company looking to attract new investors, your ratings agencies will be on the lookout for robust ESG disclosures.

Your customers and suppliers demand it

Increasingly, we’re finding key stakeholders in companies’ value chains are requiring diversity, equity and inclusion metrics, emissions reduction or net-zero targets and other ESG-related data when setting up contractual agreements. Microsoft, for example, requires its suppliers to disclose Scope 1, 2 and 3 greenhouse gas emissions data, and potentially provide third-party assurance as well.⁷ Likewise, Salesforce asks suppliers to prepare a Sustainability Exhibit in their contracts. Provisions include setting a science-based target, increasing sustainability-related disclosures, creating sustainability improvement plans and providing products and services on a carbon-neutral basis.⁸ In short, engaging with ESG is quickly becoming the cost of doing business. And those who don’t engage will lose out — financially and reputationally.

As do your investors with proxy votes

A key objective of the SEC’s climate proposal, and other sustainability-related rules, is to provide investors with high-quality, timely and comparable ESG data that they can use to power decision making. Investor demand for this data is not new, and regulation is not their only mechanism for obtaining it. Annual shareholder meetings continue to be an important venue for investors and other stakeholders to request ESG disclosures — and sometimes proxy votes speak louder than words.

And if none of the above applies … ESG is ultimately a competitive advantage

Reporting on ESG criteria is not just about compliance – with regulation, with stakeholder demands, with business norms. It’s a give and take, and there is a lot to be gained by telling your ESG story backed up by financial and non-financial information. Transparency leads to accountability. And accountability enhances trust among stakeholders, promoting the long-term resilience of the business. In the end, the companies that go to market with a mature ESG strategy and well-controlled data to back it up will have the competitive advantage.