In this episode of The ESG report, Tom Fox is talking about why Compliance Professionals should be leading the way when it comes to ESG initiatives – they’re uniquely suited to do it! From the importance of governance and transparency to the increasing value shareholders and investors are placing on it, to new tools and strategies for reporting and communicating returns and concerns, ESG should be top of mind.
Exxon Gets Called Out Carbon Neutrality
Governance doesn’t often get as much attention as the Environmental and Sustainability part of ESG – but its impact shouldn’t be overlooked. Just ask Exxon Mobile, who says several board members were soundly defeated by a shareholder nominated slate, citing the importance of carbon neutrality. Exxon forgot a fundamental law of capitalism – shareholders are the owner of the company – not the managers. As the Bank of America determined through a poll of executives and leaders, governance can be seen as transparency, and that is how shareholders are made aware of and can make changes to the actions of companies.
A Change in the Air
Exxon was already seen as a leader of the opposition when it comes to action on climate change, but if the corporate culture is willing to listen, it could mean a massive change to organizational priorities and actions. The shareholders who voted against the board members did so at the cost of short-term financial gain in the interest of a longer-term play – not something you usually see!
ESG and the Biden Administration
SEC Chair Gary Gensler has made it clear that ESG reporting is going to be a priority for the Biden administration, and the commission announced the creation of a Climate and ESG task force in the Division of Enforcement. This means that there are going to be more tools and resources available for identifying ESG misconduct. Institutional investors are equally committed, identifying ESG as a key metric. A strategy recommended for communicating ESG initiatives is a quarterly earnings call.
This process includes:
- Laying the groundwork
- Adapting the earnings call schedule
- Reporting on and explaining the return on the ESG investment
- Developing cross-functional collaborations
- Treating the earnings call as theater.
Being thorough and above all, engaging about ESG goals and progress towards them will “…ensure that the ESG story is told in a way that animates and informs everyone present,” say the authors of the recommendation.
Why Compliance Is Critical to the ESG Effort.
The elements of ESG are directly within the wheelhouse of compliance. Compliance sets up frameworks and allows you to measure against them – exactly what you need in ESG initiatives. The DOJ laid out how to think through your compliance program – risk assessment, manage the risk and monitor the risk management strategy, so you can improve it as you see gaps and problems. This framework works extraordinarily well for ESG as well – assess the materiality, map the materiality, and put systems in place so you can monitor it. Environmental programs, diversity and inclusion initiatives, and transparency – these are all areas where compliance professionals can lead the way, and make huge, beneficial impacts on an organization.
