By Wes Bricker, PwC US Vice Chair and Assurance Leader
Corporations are at an inflection point when it comes to ESG. Under the Biden administration and new Securities and Exchange Commission (SEC) leadership, we expect to see further policymaking around ESG, as well as a higher demand for companies to publicly disclose metrics on environmental, human capital, diversity and inclusion (D&I) and governance topics. Currently, disclosure standards exist, but a lack of consistent market practice for ESG reporting makes it challenging for companies to determine the right information that investors are seeking.
While companies await further guidance from the new SEC leadership, there are steps they can take to begin improving the overall reporting process.
Next Chapter for the SEC
Gary Gensler’s confirmation as SEC Chair marks the next chapter for the agency. Among many other things, former SEC Chair Jay Clayton addressed disclosure policy related to human capital, while former SEC Chair Mary Jo White kept a keen eye on board governance. And while historically acting chairs have taken on differing priorities, during her time in the role, then Acting Chair Allison Lee focused her attention on climate-related disclosures—which Chair Gensler is expected to continue pushing forward. We also expect the SEC to prioritize other environmental aspects of ESG, as well as its continued focus on human capital management. We can expect continued emphasis on reporting illustrating how a company’s workforce creates value, andhow D&I has a direct connection with corporate strategy.
Until there is a standard market practice in place, companies can take steps to effectively communicate transparent information to stakeholders at regular intervals. Sustainability reporting has steadily increased over the last decade, and the Conference Board found 45% of the 250 largest publicly traded U.S. companies (by revenue) included climate-related risks in their annual reports. Human capital reporting has also gained traction and attention over the last year. PwC found 49% of business leaders plan to increase D&I reporting to internal and external stakeholders.
Companies can expect more clear and specific reporting guidance for environmental initiatives and human capital with a focus on providing investor-grade data. Business leaders will need to reconsider how their existing reports are being produced with proper processes and controls to help ensure data allows investors to best compare value propositions and reward companies that are truly creating sustainable value over time.
Improving ESG Reporting – Looking at Net-Zero Emissions
In recent months, numerous companies have publicly made commitments to sustainability, with the goal of achieving net-zero emissions at the top of the list. The Biden administration also announced goals to cut emissions in half by 2030, setting the path to eventually achieving net-zero. Using net-zero emissions commitments as an example, relevant stakeholders can examine how this initiative impacts the reporting process, and what companies need to do to deliver results.
As the SEC, investors and other stakeholders look to companies to step up their commitments and provide high quality data,here are the key steps to developing consistent, reliable ESG reporting:
- Integration: Determine how non-financial information and decisions integrate into value creation and financial effects. Regulators and investors are looking to companies to provide investment-grade data around net-zero emissions commitments and other ESG initiatives.
- Collaboration: A company’s ESG strategy spans a wide swath of the organization, requiring multiple functions to work together towards common goals and reporting that ties deeply and directly to the overall business strategy. Companies should focus on the policies and procedures that feed the development of ESG metrics as well as the internal controls that ensure the metrics are accurate and consistently prepared.
- Accountability and transparency: As companies track efforts toward achieving net-zero emissions, reliable and rigorous data is required to demonstrate progress against milestones.
Companies should not wait for further guidance from the SEC to begin evaluating the process and accuracy of their ESG reporting. Stakeholder needs and expectations are on the rise and now, more than ever, businesses need to demonstrate that their purpose is not just words, but actions that benefit all stakeholders.
About the author
Wesley “Wes” Bricker is a Vice Chair and PwC’s Assurance Leader for the US and Mexico. He previously served as the Securities and Exchange Commission’s Chief Accountant beginning in 2016. Wes returned to PwC in July 2019, where he previously served clients in the banking, capital markets, financial technology, and investment management sectors, and served as a member of the firm’s National Quality Organization. Wes’ responsibilities in his current role at PwC encompass audit quality, business development and portfolio strategy, human capital, diversity, innovation, and technology.