Environmental, social and corporate governance — also known as ESG — is a term used to describe an increasingly popular movement in the business and investing world. In fact, it is a movement that has corporate leaders making fairly aggressive changes to their business strategy in an attempt to reduce non-compliance issues, while simultaneously making their business more attractive to investors.
But what does ESG compliance entail, exactly? And how can the consultants with the top environmental compliance services help you to avoid ESG non-compliance issues?
What is ESG Compliance?
Environmental, social and corporate governance refers to a very stakeholder-focused approach to business strategy. The objective is to maintain policies, practices, protocols and company image (amongst other things) that reflect ESG-friendly policies. These are issues that matter most to the newest eco-conscious and socially-conscious generation of prospective investors — a fact that has made ESG compliance increasingly important in recent years.
The following is a breakdown of how each of the components of ESG and ESG compliance may potentially impact a business.
Environmental – The environmental component of ESG focuses on eco-friendly and earth-friendly practices, policies and philosophies. The company culture as a whole and its operations must be environmentally-friendly, from the types of vehicles used in a company fleet and the materials that are sourced by a manufacturer, to the philanthropies and charitable work that the company publicly endorses. It also behooves companies to showcase their practices and policies that promote sustainability and measures that help prevent climate change or other adverse environmental impacts.
Environmental compliance issues can arise fairly easily because this is perhaps the most-regulated ESG component. There are many regulatory bodies such as the Environmental Protection Agency (EPA) that have the ability to pursue a company that violates environmental regulations. This can have a devastating impact on an organization’s public image, not to mention the costs associated with remediation, fines or penalties.
Social – Social issues are another component of ESG. Social issues can range from the company policies governing employee behavior and work-life balance, to a business’ involvement with or support of social movements such as Black Lives Matter and the #MeToo movement.
Corporate entities can not only leverage their highly-visible platform to promote positive social change. They can also bring attention to their own socially-responsible practices, such as an emphasis on equality, gender, and diversity inclusion or only sourcing products or services that involve humane treatment of factory workers, farm workers, and other often-exploited individuals. This is a very important part of the ESG equation because more and more potential investors are becoming aware of the abuses and exploitation of vulnerable populations.
Corporate Governance – The corporate governance aspect of ESG refers to the practices and processes associated with actually running the business. The goal is to run the organization in a manner that is ESG-compliant, ethical, socially responsible, and environmentally-friendly. ESG strategy related to governance can impact everything from a board of directors composition and hiring practices to company policies and practices within the organization.
Environmental Compliance, ESG, and Risk Management Strategy
In March 2022, the Securities and Exchange Commission or SEC unveiled environmental, social, and governance disclosure requirements that companies would need to address in periodic reports in order to maintain compliance and attract investors. As a regulatory body, the SEC has the power to issue fines and penalties, making it a powerful organization that has transformed the way that companies are addressing risk management strategy.
The SEC’s ESG compliance requirements focus primarily on environmental compliance, making this the focus of many corporate ESG risk management strategies. The SEC indicated that companies now must include “certain climate-related disclosures in their registration statements and periodic reports, including 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. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.”
How Environmental Compliance Services Help You Maintain ESG Compliance
Environmental compliance service providers can provide a company with the consulting and guidance it needs to achieve and maintain ESG compliance. Environmental compliance consultants will begin by evaluating a company and its operations to determine where any problem areas exist. Once those potentially problematic areas are identified, they work to develop a strategy and action plan for remediation.
Additionally, many environmental compliance consultants are experienced in the realm of risk management. Risk management is tightly bound to the concept of ESG compliance due to the potential for adverse impacts that arise in the event of non-compliance. The most effective ESG compliance strategies are considered as part of a company’s broader risk management strategy.
Since a company’s operations, policies, and practices are continually changing and evolving, so too should its risk management and ESG compliance strategy. This is another area where environmental compliance services can be very useful. An experienced consultant will work continually with an organization to ensure that its operations, policies, and practices remain environmentally-friendly.
Environmental compliance service providers also assist with reporting, which is a key component of achieving and maintaining ESG compliance. The current ESG reporting requirements are quite comprehensive, with numerous regulatory bodies beyond the SEC requiring periodic reports that must be made available to prospective investors, amongst others. ESG reporting requires extensive data collection and data reporting capabilities, which can seem overwhelming to companies that do not already have sufficient data management measures in place.
The top environmental compliance service providers offer consulting and advice on the topic of ESG data reporting and data collection, but many do not provide services for actually implementing the recommended data collection and data management tools. Fortunately, that is where iTech can help. Data management and risk management are amongst our specialties and we develop innovative enterprise risk management solutions, from ESG software to more specialized enterprise platforms that are architected to meet a client’s unique needs. Contact iTech today to discuss your ESG compliance and risk management software needs. Then, we’ll help identify the best technology for maintaining ESG compliance.