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Ten Key Takeaways from the Society for Corporate Governance Members on the State of ESG

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March 30, 2024
January 28, 2023
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Persefoni joined the Society for Corporate Governance and hundreds of governance professionals at the Society’s 2023 Essentials Conference on January 24-26 to learn about governance fundamentals, trends, regulations, and best practices. Attendees primarily consisted of corporate secretaries, assistant secretaries, general counsel, and law firm practitioners at public and private companies, law firms, and other institutions of all sizes and across every major industry. Key takeaways include:

  1. Carbon accounting, climate risk, and ESG management are top of mind for governance professionals. While several sessions in the Essentials program focused solely on climate and ESG topics, climate disclosure, ESG reporting, frameworks, and regulations, and climate and ESG management were mentioned often in the context of governance trends, board responsibilities, risk management, and more.  
  2. Just as with cybersecurity, governance is a top risk mitigator for climate risk. Practitioners can use best practices from the industry to best guide the Board on what their responsibilities are. If you’re just getting started with climate disclosure, consider establishing a governance structure, assessing third-party service providers, identifying enterprise risks and remediation plans, reviewing public disclosures, establishing a plan to manage inquiries from regulatory agencies, reviewing agreements with third parties, and understanding who has what responsibilities. Consolidating information across the business and eliminating data gaps from Legal/Sustainability departments to Internal Audit and Accounting are some of the biggest challenges.
  3. General Counsels and CFOs are very interested in the ESG landscape and how to plan for the future. In a quickly changing landscape, it is important to keep up and understand what is going to be helpful versus what is just window dressing. What is it that investors care about as it relates to ESG? It’s no longer about publishing a sustainability report and hoping that people read through it to figure out what is relevant. It’s now guiding the conversation with particular stakeholder groups, including investors.
  4. In the last five years, interest from investors has gone from small to the most significant driver of companies figuring out how to disclose ESG information. ESG inquiries and voting policies, shareholder proposals, and business demands are on the rise from investors and policymakers. Employees, too, want to understand the corporate position on ESG. What information is relevant to investment analysis? Corporate motivation for ESG has evolved from compliance and disclosure to part of the strategy to increase profit and competitive advantage, cut costs and be proactive versus reactive to market demands. Passive ESG investing - mutual funds that use scores to qualify for the index to get investment flows - can be a great way to benchmark a company’s performance.
  5. What the SEC is contemplating that companies disclose is about providing investors with useful information to help them make informed decisions. The SEC’s role is to protect investors. Part of their strategy in doing that is making sure companies provide consistent information between companies, so it is comparable which will protect investors by helping them accurately assess risk. Expanding the scope of information to include climate risk is a way to help investors.
  6. Companies are currently figuring out how to get ready for new requirements. Companies are in the process of assurance readiness with auditors, what controls and policies need to be in place, working in tandem with accounting and internal audit teams on how to best collect information, setting up financial accounts that deal with climate reporting, figuring out what subsidiaries will be caught within regulations; what is material to those subsidiaries and how do we consolidate and assure across the organization?
  7. Most companies today collect data manually. Organizations realize the demand for accurate and auditable climate data. They are looking to identify the most appropriate software to collect and calculate information, particularly as it relates to GHG emissions. Carbon management, accounting, and reporting are very important to investors and other stakeholders. It is imperative to know your top investors and their voting policies, but more than ever, how the company will address climate challenges in a financially sound way to reduce cost and risk is top of mind.
  8. Companies should include topics that are significant and material to the business in ESG reporting and exclude everything else. Abiding by the TCFD/SASB framework will be a huge lift, but worthwhile. Because it’s not just for an ESG report; it’s a public, political, strategic, and financial statement. Even so, companies need to identify the target stakeholder groups, understand them, and provide the most relevant information in an easy-to-understand way. That requires providing the context of ESG information, not just the data. Identify the trends over time in terms of improving performance, how it fits into the corporate strategy, and why it is relevant.
  9. How have engagement discussions with investors evolved over the last few years? Investors start off by talking about the “E” for example, how are you mitigating environmental impacts, and how are you reducing carbon in emerging markets, but diversity and inclusion and human capital management are steeply on the rise as well. Shareholders are less likely to blindly file a proposal than they used to be, even as recently as the 1990s. Most strategic companies are willing to work with shareholders to take steps forward to compromise.
  10. Investor expectations for ESG reporting are becoming more clear. In 2022, PwC conducted a survey of 325 investors on ESG reporting. The top two issues for US investors are reducing GHG emissions and worker health and safety. US investors want to see C-suite responsibility for ESG and board oversight of relevant ESG issues. For example, how are companies incentivized and compensated by making improvements with climate goals? US investors want the information in ESG reports to be subject to the same reviews as a financial statement audit - they need reasonable assurance.

>> Download our Climate Disclosure Starter Guide, a joint white paper produced in collaboration with the Society for Corporate Governance.

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