Mukund is CEO of Benchmark Digital Partners, LLC.
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Companies needn't be intimidated by the U.S. Securities and Exchange Commission's (SEC) imminent mandate for public companies to file standardized climate risk disclosures, nor should they lament the task of compliance. The path to compliance, while costly, promises far more for companies than simply avoiding the ire of the SEC.
However, with a level playing field for corporate climate risk disclosures, capturing this opportunity will be a matter of differentiation—business leaders will need to set and demonstrate progress toward more holistic sustainability goals.
To accomplish this, companies will first need to look beyond their climate risks and identify the social and governance issues that matter most to their internal and external stakeholders. With the foundation that this materiality assessment provides, business leaders will then need to establish and secure stakeholder buy-in.
Finally, executives will need to sustain stakeholder buy-in to both the organization's environmental, social and governance (ESG) issues management goals as well as their corresponding efforts. To do this, they will need to adopt a digital platform capable of streamlining and automating accurate, efficient and credible sustainability performance data management and reporting.
On the materiality assessment, business leaders will first need to determine the extent to which their internal policies and plans consider the social and governance issues itemized by the likes of the Global Reporting Initiative (GRI) and other independent ESG reporting standards organizations. Further, companies will need to compare their performance against those issues with that of their geographic neighbors, competitors and industry writ large.
This gap analysis must then be supplemented by stakeholder input. Businesses' customers, employees, investors and other parties are increasingly demonstrating a preference to transact and otherwise engage with organizations that not only reflect their values but afford them regular opportunities to manage the organization's accounting for them.
Stakeholder input will be secured via ad hoc investor, supplier and customer consultations as well as spot interviews with and periodic surveys of the company's employees and, in some cases, host community representatives. This input is used to assign priority for improving discovered ESG performance shortcomings, set consensus goals for managing them, determine how the company's performance toward those goals will be driven and confirm how that progress will be evaluated and disclosed.
By demonstrating that their values are reflected in the company's ESG program, these steps can at least attract stakeholders' buy-in. To secure it, executives will need to develop ESG goal achievement pathways that are driven from the bottom up.
In practice, this will entail assigning responsibility for the collection, monitoring and internal dissemination of consensus ESG KPIs to distinct managers and teams. In effect, this can enable KPI owners to see firsthand how their or their teams' operations are either helping or harming their assigned performance outcomes. Further, by establishing clear channels for the dissemination of ESG performance data, business leaders can enable KPI owners to see how their performance outcomes affect those of their counterparts.
With stakeholders' expectations and priorities everchanging, though, sustaining their buy-in requires the exercise of proactive and responsive engagement to be routine. Stakeholders' satisfaction with and recommendations for a company's ESG performance must be continuously gauged. Ideally, this will be achieved through a mix of data-driven internal and external communications campaigns whereby stakeholders are periodically presented with the outcomes of the companies' ESG issues management efforts.
If setting more holistic ESG performance goals is the first step toward differentiation, then it's the effective accommodation of stakeholders' expectations that drives it home. However, this requires nimbleness and efficiency—attributes that spreadsheets, emails and other manual, siloed and error-prone processes for ESG performance evaluation, management and reporting fail to provide.
To truly differentiate, executives will need to adopt cloud-supported ESG data management and reporting platforms. These systems not only bring efficiency to the ESG performance data collection process but enable their users to automate the monitoring of progress toward consensus sustainability goals.
Getting there is no easy task, but it is achievable. While every company's journey to fully leveraging an ESG data management platform will be different, most companies will need to begin by forming a team to lead the endeavor. Someone must have the ultimate responsibility. This team must identify both immediate needs and overarching priorities.
The team should be explicit. Companies that do not know why they are investing in such platforms will struggle to follow through on necessary tasks. After all, who wants to work on issues they ultimately think don't matter? Further, the team needs explicit guidance from senior leadership that their work is a priority, and they need senior leadership to provide real resources.
That team's work must also include "planting" the importance of ESG goals in departments throughout the company. Ultimately, ESG initiatives succeed or fail based on the culture and buy-in across the company.
Once the team has covered the strategic to-do items, it needs to get the tactical work right, too. There are a plethora of reporting platforms on the market, and those charged with narrowing down the search must be clear on what features they need and anything they should avoid. For example, does the platform allow for workflow management and data collection for the requirements and disclosures your company must comply with ranging from EHS to DEI to ESG issues? What does the support team at the platform look like? Is it committed to your success? Beyond data management, is it a partner that will be willing to not only walk you through the reporting services it provides but also share its industry expertise, guiding you through the complex web of reporting requirements?
Finally, once an ESG data management and reporting platform is in place, organizations need to set a baseline. Where are they starting? Growth and success in the ESG and EHS space cannot be accurately measured and shared with investors and regulators alike if the growth cannot be proved. When organizations take all of this into account, they will find that the SEC's proposed climate disclosure rules have been the catalyst for long-term ESG accountability and success.
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