SEC Mandates for ESG Are on the Way
Is Your Organization Prepared?
On May 25, 2022, the US Securities and Exchange Commission (SEC) proposed a new set of rules regarding Environmental, Social, and Governance (ESG) measures for publicly traded companies. While these recently proposed requirements currently apply to SEC registrants, most business analysts feel it is only a matter of time before they extend to all public companies (and private industries as well, at least indirectly).
ESG requirements are extensive and evolving, as companies throughout the world are facing increased pressure to address environmental issues from government entities, citizens, and consumers. The goal of the SEC is to increasingly focus on regulating ESG issues, such as human capital management, board diversity, climate change, and cybersecurity risk governance.
The Main Regulatory Components of the SEC
The purpose of the new SEC regulations is for public companies to enhance and standardize climate-related disclosures to shareholders. As such, organizations will soon have to follow the proposed, mandatory ESG disclosure rules, regulations, and amendments.
These changes are to be put in place to ensure investors are treated fairly and honestly, maintain fair markets, and facilitate capital formation. Regular auditing will help enforce that organizations offering securities for sale are truthful about their business, the securities they are selling, and the investment risks pertaining to said securities. The new SEC regulations will directly impact brokers, exchanges, and any other entity that sells and trades securities.
Proposed SEC rules include organizations having at least 80% of their assets aligned with ESG goals. Climate disclosure guidance will also help govern how the SEC implements new regulations.
With the rapid advancement of climate change, the SEC will be looking to regulate greenhouse gas and energy emissions, air and water pollution, deforestation, and water supplies. Organizations will need to provide detailed reports on their energy efficiency, recycling and waste management, biodiversity, carbon footprint, and energy and water-saving capabilities.
The Social part of ESG reflects the company culture and success with consumer and social issues like diversity policies and metrics, data privacy and security, gender policies and metrics, employee engagement, community relations, labor standards, employee safety, customer satisfaction, and more.
SEC auditing will focus on the ethics of corporate governance, including topics such as board composition, shareholder rights, executive compensation, bribery, corruption, lobbyists, litigation transparency, political contributions, and whistleblower programs.
How to Prepare Your Organization for SEC Mandates
Identify Relevant Data Needed for ESG Reporting
Now is a good time to get a head start on identifying the relevant information required for ESG reporting, including where the data is stored, if the data is owned by your company or provided through a third party, if the data is properly documented, and if it is accurate.
Your organization may need to install new systems for the ease of both gathering relevant data and properly reporting this information.
Get Your Key Stakeholders Involved by Creating an ESG Committee
Depending on the stakeholders and their areas of expertise, ESG can have a different meaning to each. By engaging with stakeholders, you can help align their business objectives to the management of ESG regulations and bring the group to a consensus.
Develop Measurable Goals
Identify the areas of risk in your organization that may run afoul of ESG regulations and set measurable goals for regulatory compliance. Build controls into applications and automated data processes for accuracy of data and report generation. Continue to measure major ESG topics to keep ahead of forthcoming regulations.
Perform a Gap Analysis
You can’t just assume you have all the information you need for correct reporting. Depending on the specific rules and regulations that will apply to your industry and organization, you most likely will have gaps between the data you have and what’s required. A gap analysis will help you set up a reliable, repeatable process for collection and verification.
With open communication between ESG committee members at your organization, determine the methods and metrics needed to track your specific risk areas for SEC compliance. Track the data from initial assessment to the current status, to any required steps for risk remediation. Perform an audit of the results to confirm accuracy, then share the results with key stakeholders. Work together to disseminate ESG compliance information to both internal and external audiences.
How SureStep Can Help
SureStep is a proven industry leader in helping organizations achieve the new benchmarks and compliances with the regulation of ESG measures. We help companies of all sizes in the development of their ESG strategy and plan based on stakeholder expectations, major corporate impact areas, and the level of your ambition.
We’ll analyze all areas of your company to see where you currently are in meeting ESG goals, perform assessments for improvement, and benchmark performance in relationship to your goals. We ensure all stakeholders are engaged, help define your strategy, develop the framework and standards for reporting, and put the tools in place to ensure program success.
Set Your Organization Up for the Future
Remember, when it comes to new SEC regulations, it’s not a matter of if, but when. Schedule your free consultation today with a SureStep expert so your organization will be properly prepared to meet upcoming ESG compliances.