How Companies Can Strengthen Their Commitment to ESG
Early in the pandemic, there was concern that sustainability initiatives would take a backseat to the immediate crisis. Instead, 2020’s tumultuous events acted as a wake-up call for companies to accelerate their efforts and double down on their commitment to ESG. Investors and companies seized the opportunity to recover from the pandemic and social injustice challenges to build a more inclusive and sustainable future.
2021 marks a critical time for companies to ramp up their efforts and answer the call to enact meaningful change. Moving forward, they must prioritize the fight against climate change and social inequity, build investor-friendly strategies, and be prepared to adhere to incoming ESG regulations.
ESG regulations under the Biden administration
Early in President Biden’s campaign, it became clear that one of his primary focuses would be to tackle the climate crisis. Seen as an “existential threat to humanity,“ President Biden issued executive orders to combat climate change in the U.S and abroad, rejoin the Paris Agreement, and establish a White House Environmental Justice Interagency Council and Environmental Justice Advisory Council within his first week in office.
While some progress has started, the full extent of ESG regulations has yet to be revealed. Thus far, President Biden’s cabinet nominations can give us a clue. The SEC has taken a backseat to regulate ESG reporting in recent years. However, Biden’s nomination of Gary Gensler as chairman of the SEC could be a sign that the agency will become more hands-on, potentially issuing disclosures regarding:
- Board-level diversity
- Greenhouse gas emissions and carbon footprints
- Diversity, equity, and inclusion in the workplace
- Corporate political spending
Biden has also outlined his administration’s plans to support climate action within government-owned properties. The order includes a comprehensive plan for a carbon pollution-free electricity sector no later than 2035 and calls for increased energy and water efficiency in federal agency buildings. Across these plans, Biden demands increased transparency and data to prove the impact of these efforts.
Building an investor-ready strategy
- Scope 1: Direct emissions from owned or controlled sources
- Scope 2: Indirect emissions from the generation of purchased energy
- Scope 3: All indirect emissions within the value chain, both upstream and downstream
Companies that emphasize reducing and reporting their Scope 1 and 2 emissions are more likely to receive more significant investments.
A recent study found that implementing sustainable practices drives increased financial performance and provides protection during economic or social crises. In 58 percent of their studies, researchers found a positive relationship between ESG and financial performance. An important caveat here: ESG disclosures that lack measurable strategy don’t drive improved financial performance.
In 58% of their studies, researchers found a positive relationship between ESG and financial performance.
BlackRock CEO Larry Fink has been vocal about the need for more sustainable investments and long-term ESG business strategies. In his annual letter to CEOs, Fink discussed how investors in mutual funds and ETFs increased their investments in sustainable assets by 96% from January 2020 to November 2020, compared to all of 2019.
“We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”
According to Fink, “we know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.” Fink urged companies to quickly issue sustainability disclosures for themselves and their investors’ interests instead of waiting for regulators to do so.
The fight for environmental and social change
The last year has shed new light on the social and environmental issues that have plagued us for too long, from police brutality and systemic racism to 2020’s wildfires. Companies must make measurable efforts to uncover the disparities within their practices and eradicate them as we forge ahead.
Corporate America has pledged to diversify corporate boards, invest in BIPOC small businesses, schools, and communities, and prioritize equity and appropriate working conditions. Several top companies have taken the step to bridge the gap between racial inequity and inclusion. Apple announced a $100 million initiative to expand its technology into previously excluded areas, including implementing learning hubs for HBCUs.
PepsiCo committed to doubling its spending with Black suppliers and investing $50 million in Black-owned small businesses.
PepsiCo has also made an effort to address racial equality through its $400 million investment in social justice and equity initiatives over the next five years. Additionally, the company intends to double its spending with Black suppliers and invest $50 million in Black-owned small businesses. As for representation within the company, Pepsi pledged to boost recruitment at HBCUs.
Companies that strive to grow their commitment to ESG initiatives are even more effective at building long-term growth. For instance, HMTX Industries has pioneered the use of the Just Label, showing measurable efforts to ensure safe working conditions, diversify its supply chain, and leave the communities that they operate in better than they found them.
“It’s meant not as a gold star, but to share data, show impact beyond intention and to support positive conditions for workers and surrounding communities.”
Rochelle Routman, Chief Sustainability and Quality Officer at HMTX Industries, says the Just Label is “not meant as a gold star, but to share data, show impact beyond intention, and to support positive conditions for workers and surrounding communities.”
Back your commitment to ESG with reliable data
To effectively refocus on environmental and social responsibilities, companies will need to increase their efforts to report and reduce carbon emissions. A critical first step is to equip themselves with the right tools to support consistent and accurate reporting of scope 1 and 2 emissions. As investors continue to see the correlation between the commitment to ESG and financial performance, they’ll demand quantifiable results.
This is a great opportunity for companies to examine how they are currently getting the data they need for scope 1 and 2 reporting and work to streamline it. Especially as the Biden administration’s pending regulations call for companies to move toward energy efficiency and renewables – and they’ll need the data to prove it.
Urjanet can help companies double down on their commitment to ESG and provide automated access to the data they need for scope 1 and 2 reporting. Our solutions provide the necessary data to measure and report the impact they’re generating in water, energy, and waste reduction. To elevate your sustainability efforts with automated utility data collection, speak with one of our data experts today.
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About Ma-Keba Frye
Ma-Keba Frye is a Content Marketing Associate at Urjanet, assisting with content development and execution. When she's not writing, she enjoys reading, listening to music, and volunteering.