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The arrival of mandatory corporate sustainability reporting

The arrival of mandatory corporate sustainability reporting

To paraphrase management icon Peter Drucker, you can’t manage something unless you measure it. Without measurement, you can’t tell whether management’s actions are making things better or worse. The importance and seriousness of sustainability management require the development of universally accepted sustainability indicators. Just as financial accounting requires agreement on terms and reporting requirements to facilitate independent auditing, sustainability requires the same precision. Publicly traded companies and all companies face pressure from investors to report environmental risks, and more and more companies are disclosing environmental and social governance (ESG) measures.

recent wall street journal A survey of corporate sustainability officials revealed that while more companies are revealing sustainability metrics, there is confusion about measurement and the need for uniform reporting requirements.according to Magazine reporter David Bragg:

“Public companies in the United States are increasingly disclosing sustainability information, but many say they find it challenging to report basic climate data, which many regulators around the world may be required to do under upcoming policies. mandatory reporting standards. Nearly two-thirds of respondents said their companies are disclosing environmental, social and governance information, up from 56% last year. Annual Survey of Sustainability Officers A survey conducted this spring by The Wall Street Journal Professional Edition.

Reporting challenges arise from imprecise measures and a lack of experience in collecting and reporting these data. Sustainability professionals trained in greenhouse gas measurement and life cycle analysis will meet this challenge. In Columbia University’s Master of Science in Sustainability Management program, we offer courses in a variety of fields, and soon hundreds of our graduates will be helping businesses meet their reporting requirements.

In response to a flood of comments, the Securities and Exchange Commission has been revising its proposed sustainability reporting requirements, delaying their expected release last spring. The political calendar leading up to next year’s national elections has put intense pressure on releasing the standards this autumn, with release now expected in October. Whatever rules are issued will certainly face legal challenges, but to the extent that they link environmental risks to financial risks, they are well within the scope of the SEC’s authorizing legislation. Furthermore, the SEC is not the only agency working to unify sustainability metrics.Again, according to Bragg:

“After years of incomplete voluntary ESG reporting based on a series of frameworks, global regulators are finalizing rules requiring companies to publish standardized information. California’s governor said he will soon sign the state’s Request to be written into law. SEC rules are expected later this year. European regulations are already in place Many other countries are also developing standards.The climate framework that the International Standards Committee for Sustainable Development hopes to complete last summer Become a global baseline”.

Assuming the SEC’s rules can withstand the ideological onslaught they will face, it is likely that, like financial accounting, U.S. rules will be highly influential and, over time, become global standards. If extremists on the American right dominate the disclosure debate and overturn the rules of the conservative Supreme Court, American companies operating globally will be subject to foreign or global reporting requirements that they have little hope of influencing. The realpolitik of sustainability reporting requirements may persuade U.S. companies to focus on impact rather than overturning reporting requirements. The ideological and dysfunctional side of U.S. national politics will certainly lead to court challenges to SEC rules, but the gravity of this effort and its impact are unknowable.

The SEC’s initial rules are more limited than many other frameworks being developed and focus solely on carbon disclosures. My guess is that carbon emissions from a company’s supply chain will be omitted or optional in the final disclosure rule. My point is that this initial rule is a first step and, like financial accounting, it will evolve over time.

An increasing number of public companies and even many private companies are disclosing sustainability metrics. Theorists who call this “woke” management fail to understand the extent to which these measures are indicators of effective and sophisticated management. ESG measures do not exclude financial metrics, in fact, they are correlated with financial success. The main focus of private enterprise will not change under sustainable development management. They are still profits, market share and return on equity. But modern organizations recognize that they operate on a more crowded, interconnected and warming planet.These facts about organizations’ environments require them to consider their environmental, social and community impacts as part of their management conventional Organize life.

Furthermore, modern organizations compete for talent, which means employees have influence over management actions. Young employees care about the company’s ESG performance. The post-pandemic push for hybrid working arrangements is ample evidence that top-down management is no longer possible and organizations must respond to employee preferences.

The Company operates in a regulated environment. That’s why they have in-house counsel and regularly hire outside law firms. When employees are laid off or laid off, it’s not uncommon for them to sue their former employer. U.S. companies operating across the country must understand state laws and even local ordinances in order to operate successfully. Companies operating globally must understand the rules of other countries. More than 10,000 non-European companies Must comply with the EU’s new ESG reporting requirements. About a third, or more than 3,000, are American companies. This regulatory environment is normal, expected, and fully integrated into the decision-making of modern businesses. The free market is a relative rather than an absolute concept. There has never been and never will be a completely free market because that is akin to anarchy. One measure of a company’s success is its ability to navigate the regulatory environment while achieving its financial goals. The widespread and growing voluntary disclosure of sustainability indicators occurs in anticipation of government regulation and in response to investors, customers and investors. staff need.

But the problem with voluntary disclosures is that they use measures that don’t allow investors to compare one company’s environmental risks to another, and the information disclosed is not audited. To make matters worse, some NGOs that help companies measure and report on sustainability are paid by the companies they report on, so these ESG reports may be fiction and we will never know. Uniform disclosure metrics are urgently needed. Only the SEC, with its role as gatekeeper to public capital markets, has the authority to develop and enforce standard reporting and auditing requirements.

Efforts to decarbonize our economy will continue quietly, sometimes with explicit opposition from fossil fuel interests. But they are increasingly unable to combat the reality of global warming. They will persist, as Mike Bloomberg’s recent initiative recognizes, and their focus will shift from burning fossil fuels for energy to using them for plastics and other petrochemicals. As part of his efforts to reduce global warming, Bloomberg will spend $85 million to prevent chemical plant sites. If petrochemical plants were required to measure and report their air pollutants, they would likely take the initiative to learn how to reduce these emissions while producing the products they sell. It’s easy to see why they might object to reporting requirements, but if the alternative is a siting war with local community groups, it may be in their financial interest to measure, report and reduce emissions.

Sustainability metrics and sustainability management are finally here. For those of us who have been developing these practices and this profession for more than a decade, this is welcome, but not surprising. The climate crisis modeled and predicted in the last decade of the twentieth century is all around us now. The feared loss of biodiversity has also arrived. I still believe we can develop productivity and a growing economy without destroying our homeland. It requires intelligence, creativity, technology, but most importantly our attention and care. Carbon disclosure is a critical step in carbon management. Standardized sustainability indicators are a key step towards realizing the vision of sustainability management.

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