As regulators and market operators around the world tighten their requirements for companies’ ESG reporting standards, many corporate teams are re-evaluating how their organization handles sustainability data management in an effort to render the – often complicated – process as manageable as possible.
This was the task ahead of the panelists on a recent IR Magazine and Governance Intelligence webinar, titled ‘How to take control of your ESG data-management processes’. To start, Sarah Fortt, partner at Latham & Watkins, laid the groundwork for discussion by delving into the SEC’s final climate change disclosure regulations, first unveiled to the capital markets on March 6.
Though the final rules represent a scaled-back version of what the SEC originally proposed, they still represent ‘a pretty significant expansion to federal US securities law,’ Fortt explained, with a corresponding increase in disclosure costs for many companies.
‘I really want to highlight the fact that the risk disclosure is going to be significant,’ she told attendees. ‘And it’s going to take a lot of companies some time to really think about how to integrate that into their controls, as well as how to disclose it in an effective way.’
Fortt emphasized the importance of decoupling impact materiality reporting from financial materiality reporting, and said companies needed to prioritize strategic thinking around materiality in general in light of how global sustainability requirements – particularly in Europe – are progressing.
While there is still a good chance that legal challenges may have an impact on the final state of the SEC’s rules, Fortt said materiality analyses and voluntary disclosures would still be ‘crucial’ from a compliance perspective.
Frank Perez, executive vice president & chief IRO at Ponce Bank, said that despite the clarity the rules offered, they still posed a ‘confusing’ message for companies. To counteract this, he said he collaborates with other ESG partners, whether in the banking industry or further afield, including working directly with Frank Kelley, director of ESG & compliance services at DFIN.
‘I’m a one-man shop,’ explained Perez. ‘So it’s very challenging as [things stand] because [ESG] is not my only role at the organization. Frank is my anchor in terms of deciphering what the latest changes mean for us.’
For Kelly, this collaboration – both external and internal – is crucial to managing ESG data well. ‘It’s very important to develop a true process, both internally and with your partners – whether that’s an ESG consultant, outside counsel or other – to really implement a data-driven, foundational ESG program,’ he explained. Finding an ‘internal champion’ in your company is an important part of this, he added.
From there, the three panelists came up with several action items for IROs, internal counsel and other reporting professionals to consider with reference to their data-management workflows.
Some of their suggestions included:
- Work to integrate climate risk disclosures into internal controls and processes – a significant undertaking for many companies
- Include forward-looking statement disclaimers and liability protections in climate disclosures, something that will become increasingly important
- Foster cross-departmental collaboration between IR, finance, legal, IT and other teams on ESG reporting. Break down silos
- Ensure there is C-suite and board-level endorsement and leadership for sustainability initiatives. This buy-in is crucial.
Each panelist then delivered some final advice to the webinar audience. Fortt said it was important to ‘ground your understanding of how to move forward with your sustainability and climate-related reporting in the reality of compliance’, particularly in light of the threat of greenwashing and from a liability perspective.
Kelly said the entire data-management process was a balance between ‘articulation’ of the ESG proposition and ‘harmonization’ between all the different communication channels. He added that the G of governance was often overlooked and said addressing this starts with having a robust structure in place.
Perez reiterated that for him, it is all about collaboration. ‘What I’ve done is become involved with as many committees and working groups as I can,’ he explained. ‘I’ve learned a lot through that. If you try to read everything that’s put out there related to ESG without doing your own research, you’re going to get discouraged.’
Click here to watch the full webinar on demand via Brightalk.
