Halloween is approaching, but business executives face far more frightening issues — including inflation, high employee churn, the fallout from the war in Europe, and, increasingly, a mismatch between investors’ ESG demands and organizations’ ESG capabilities.

To help companies address complex ESG-related challenges, the FiscalNote Executive Institute hosted a special Halloween-themed working group session called “Unmasking ESG: Strategy Sessions for ESG Leaders Seeking Actionable Solutions” on October 25. Breakout groups were led by Paul Maidment, Editor, Family Office Brief at Oxford Analytica; Lauren Bruning, Associate General Counsel & Head of Sustainability at Energizer Holdings; and Becca Bycott, FiscalNote’s Director of Thought Leadership and Engagement.

Below are some key insights from the discussion:

Regulation to Improve ESG Reporting

• Standardize and harmonize domestically. Many companies that engage in ESG reporting would welcome universal disclosure standards set by government agencies, such as the SEC.

• Standardize and harmonize abroad. Global standards on ESG reporting — akin to the Basel Committee on Banking Supervision — would similarly benefit the many companies that operate across borders, as well as the many customers who consume products made (and labeled differently) across the world. 

• Consider implementing two types of ESG reporting. Just as the financial statements that companies prepare for investors are typically different from those that they submit to tax authorities, regulators may likewise require two different sets of ESG disclosures: one for investors (focused on bottom-line impact) and one for the general public (focused on societal impact).

• Risks of greater ESG regulation, part 1. Any government ESG mandates should account for the fact that compliance burdens will fall more heavily on smaller firms with fewer resources — and thus, potentially give Big Business unfair advantages in the marketplace.

• Risks of greater ESG regulation, part 2.. The process for creating ESG regulations should be highly transparent — to reduce the threat of “regulatory” capture by lobby groups; to reduce the risk that ESG reporting is turned into an ineffective, box-checking exercise; and to account for the possibility that excessively uniform standards for diverse companies and industries may not work well in practice.

Producing High-Quality ESG Metrics

• Companies face more ESG-related demands than ever. Investors, customers, regulators and activists no longer hesitate to communicate their mounting ESG expectations to companies. 

• Data-gathering and reporting infrastructure are still inadequate. Despite recent progress, many companies’ ESG capabilities still trail their ESG ambitions. 

• Data integrity is vital. As ESG performance becomes more important, organizations should also focus on creating internal incentives (for employees and management) and external incentives (for suppliers) that encourage accurate, timely, ESG reporting. 

• Adopt a centralized, internal ESG database and clearinghouse. Some companies still neglect this basic step for improving the quality of their ESG reporting. 

Communicating ESG Performance to Investors

• To get on the same page, cut through organizational silos. Encourage frequent, structured, cross-department collaboration — including between marketing, legal, operations, finance, and HR — to help the company present a cohesive and coherent ESG message to the public. 

• To get on the same page, educate employees about ESG. Providing regular training will help equip workers with the knowledge and skills that companies need to strengthen their data-collection and reporting infrastructure. 

• Implement checks and balances. Whether reporting on ESG performance, advertising the green credentials of products, or making claims about recyclability, false or misleading claims to the public can expose companies to significant legal and reputational risk. Robust internal vetting processes can help firms avoid such mistakes. 

Responding to ESG Backlash

• Follow your North Star. Laws and regulations will change over time, as well as between and within jurisdictions; but if a company’s customers value sustainable practices, the firm’s management should do so too, regardless of external “noise.”

• Focus on the bottom line. When operating in a politically hostile climate, ESG advocates should emphasize the business case for ESG — which is more likely to convert skeptics — not the “saving the world” case for ESG.

• Anticipate backlash from across the spectrum. Green NGOs are no longer merely targeting fossil-fuel companies and other obvious polluters. Activists are also looking to litigate against, and otherwise censure, “ESG-friendly” firms that are viewed as not living up to their commitments. 

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