The SEC is gearing up to cement climate disclosure requirements for public companies, a potentially giant leap in standardizing the way organizations report on ESG. At the same time, the Republican-led congress has made clear that plans to fight the use of ESG in the investment process on the grounds that it is based on a social agenda.
This is a great time to put forth a reminder that ESG is not an agenda – in fact, quite the opposite. ESG is data. The primary use of that data is to capture material risks to a company, so that investors can make more informed decisions.
Robert Eccles and Dan Crowley put this very succinctly in their recent Harvard Business Review article. They note that:
Dialogue about ESG should return “to its original and narrow intention — as a means for helping companies identify and communicate to investors the material long-term risks they face from ESG-related issues. Climate change is one such risk for many companies — particularly those with shoreline assets that are vulnerable to rising seas, or those (such as fossil-fuel companies) for whom future revenue would be greatly reduced if governments start taxing carbon.
“As a result, greenhouse gas emissions are a material issue for an oil and gas exploration company, as are air quality and employee health and safety. But according to the Sustainability Accounting Standards Board (SASB), which helps identify risks by industry, so are human rights and community relations and business-model resilience. Non-material issues include energy management, customer welfare, and systemic risk management.”
Read the full article here: Rescuing ESG from the Culture Wars.