Regulations will provide a needed roadmap to companies already working to track environmental, social and governance (ESG) metrics while also bringing others that have been hesitant to adopt such initiatives off the sidelines, according to Workiva CFO Jill Klindt.
“Lots of companies are already moving toward change and moving toward recording more information, but not everybody,” Klindt told CFO Dive. “So it’s likely that the regulators will need to step in to get widespread buy-in. And I think that what those regulations will also do will be to help bring some consistency.”
Change is coming, with more guidance in the the works and the proportion of directors who say their companies have linked ESG to business strategy surged 64% last year from 49% in 2020 even as CFOs face allegations of “greenwashing” and confusion around benchmarks. Greenwashing is the practice of making the company seem more ESG-focused than it actually is.
The International Accounting Standards Board, the supervisor for accounting rules in many countries outside the United States, announced in November that it was creating a board to draw up disclosure standards for ESG parties. And last year Securities and Exchange Commission Chair Gary Gensler said the agency’s staff would release an initial group of standards this year. It's not clear what the ultimate mandates will look like but the information could ultimately become part of future 10-Ks, she said.
Despite the uncertainty, it's important to take action now to prepare data and not wait for regulation, according to Klindt and other executives who took part in a CFO Media Roundtable panel on the topic this week.
Learning how to use digitization to access data on such ESG issues as diversity or carbon footprint, setting up internal governance structures to focus on the issues and collaborating with other like-companies to learn new processes for managing ESG data are steps companies can take, the executives said.
Kevin Berryman, CFO of Jacobs Engineering Group, said his firm formed a board-level ESG risk committee that provides a framework to track what the company is achieving strategically. The group also has members who consider the rigor of its process. At the same time, the company makes sure there is always an ESG component in all the work it does with clients. Likewise Craig Bealmear, CFO of Renewable Energy Group, said his firm has hired an external auditor to get their input on how they are addressing the initiatives.
All three executives agreed that technology would be key to assessing the data that will likely be needed with the potential need for training financial executives to use new systems that could pull the data. "Technology is the obvious answer. You wouldn't want to do any of that work manually," Klindt said.
Klindt’s SaaS firm is one of about 70 companies that are on the United Nations’ Global Compact CFO Taskforce, which has committed to investing more than $500 billion toward sustainable development goals. But in addition to technology, she noted, companies should consider using this interim time to focus on improving the underlying ESG performance they’ll ultimately be measuring.
“The way I think about how the SEC mandate will come into play is it’s not going to be telling you what your numbers are going to be," she said. "It’s going to tell you how to report them. As a company, you need to understand that you also need to do better and better and improve on all the different things you’re reporting on.”