Written by Heather L. Cole, June 2nd 2022
Every company even privately held companies should pay attention to ESG reporting! ESG stands for Environmental, Social and Governance and is a set of standards used by socially conscious investors to screen potential investments. But wait it’s so much more than that!!! The SEC will most likely require companies to provide ESG Reporting in the future. But all companies should care about ESG reporting and today we will discuss why. And if you are an IBM Cognos or IBM Planning Analytics client, we have good news for you…
What is ESG?
First let’s clarify what ESG reporting is. As we mentioned it’s a set of standards that will help not only investors, but employees, customers, credit reporting agencies and more evaluate how your organization is performing in three areas.
- Environmental - criteria consider how a company safeguards the environment, including corporate policies addressing climate change. So, are you a polluter, or generating too much CO2?
- Social - criteria examine how a company manages relationships with employees, suppliers, customers, and the communities where it operates. For example, do they have diversity and inclusion programs?
- Governance - deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Why You Should Care
All companies and team members should care about ESG for several reasons.
SEC Rules:
Initially ESG will impact publicly traded companies. The SEC in March 2022 proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports. These included information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. So if you are with a publicly traded company or invest in one, this will provide transparency on organizational behavior.
Trickle Down to Private Companies
If your company is private but provides goods or services to a public company, you will see that they are starting to require vendors to provide information about their emissions and other ESG measures. The reason is that the Greenhouse Gas Protocols define what they call Scope 3 emissions as “all indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream”. Therefore, businesses are now working to engage with suppliers and create low-carbon and easily recyclable products and services to reduce value chains emissions. The net effect is that almost everyone that provides goods and services to publicly traded companies will need to report or risk losing large contracts.
Credit Ratings
Many experts including the S&P Ratings believe ESG factors will affect your credit rating. So, if you want to borrow money in the future, your ESG scores may help you get a better rate, or they could hurt you.
Employees Care and want to work with companies in alignment with values.
Customers Care and want to work with companies in alignment with values.
Investors are researching and investing in companies with better ESG ratings.
Executives Care - Your Executives are discussing this with other executives, so if you are responsible for reporting or analytics, you should care.
The Guidelines for ESG Reporting
The guidelines for ESG reporting are still evolving and there are a number of organizations that are working to help create standards such as the Greenhouse Gas (GHG) Protocol Corporate Standard which classifies a company’s GHG emissions into three ‘scopes.
The Sustainability Accounting Standards Board’s (SASB) Standards, which are industry-specific, sustainability disclosure standards focused on financial materiality.
And the Task Force on Climate-related Financial Disclosures to improve and increase reporting of climate-related financial information. (TCFD)
But companies looking to begin tracking their ESG measures should know it’s ever changing so your tools must be flexible.
Call to Action
If you are a business intelligence professional or maybe you are in the finance team, I urge you to do your research. Understand what ESG is. Ask what your organization is doing about ESG! You might find the legal department is running with it initially, because it’s an SEC risk item. But let’s think about it. Business Intelligence and finance teams are in a unique position to help. They know the data; they understand reporting and can help develop scorecards and dashboards to keep ESG on everyone’s radar.
If you are an IBM Cognos or IBM Planning Analytics client, did you know IBM has samples of ESG reporting using their tools. Email us at services@lodestarsolutions.com and we can provide a demonstration on how you can leverage the tools you own today to do ESG reporting with IBM Cognos and IBM Planning Analytics.