With regulatory guidance coming and more investors applying ESG criteria when evaluating risks and growth opportunities within companies, corporate execs are stepping up their efforts to get ahead of the issue.
Nearly half (48%) of respondents in a survey of senior business executives of private and publicly traded companies confirmed that they have an ESG strategy in place, with 33% of public, and 14% of private companies characterizing ESG as critical to their business objectives. Just over a third (34%) of respondents had not yet formally adopted ESG efforts, but expect to do so in the next one to two years. In contrast, 26% of private companies and only 2% of public companies reported that they have not adopted an ESG strategy, nor do they have any current plans to do so.
As concerns over sustainability, climate change and social justice grow, and corporate ESG responses are increasingly scrutinized, the law firm of Thompson Hine dug deeper into these issues by conducting a nationwide survey of in-house counsel and other senior executives to find out what they are doing about ESG. The survey included 134 executives representing a mix of industries, company sizes and locations, and a public/private ratio of 36% to 64%. The issues the firm asked about included:
- the status of their implementation of ESG practices and programs;
- the nature of the disclosures they are providing or planning to provide;
- their short- and long-term ESG-related needs and challenges;
- delegation of ESG oversight responsibilities within the company; and
- how and against which metrics they are measuring their success in meeting ESG objectives.
The report emphasizes that, with so many processes and protocols to consider under the broad ESG umbrella, companies are working to prioritize objectives, yet, in the absence of a uniform reporting framework, even the most well-intentioned business leaders face significant challenges.
What’s more, the Biden administration has made ESG a priority, with the SEC and Department of Labor planning to issue guidance in the coming weeks. As such, companies are facing looming pressures and those that fail to provide sufficient transparency or embrace accountability in these areas may face reduced interest in investment, decreased performance and reputational damage, the report observes.
“The pressure to implement ESG initiatives is coming not only from investors and shareholders, but from all stakeholders, including consumers and the broader public,” notes Heidi Friedman, a partner at Thompson Hine. “And regulatory agencies are ramping up their own focus on ESG issues, with the SEC’s proposed ESG rulemaking expected this October. If companies are not yet focusing on these issues, now is the time to start.”
(This issue was discussed by panelists at this year’s NAPA 401(k) Summit, who noted that the consideration of ESG factors is coming up as a topic not only for DC plan menus, but also in corporate RFPs, including questions about purchasing and procurement policies.)
Top Concerns
Whether public or private, companies reported that data collection/verification was the most pressing ESG concern in the next year (52% public and 43% private). Regulatory activity (27%) and staffing (27%) rounded out the top three significant near-term concerns for public companies, while private companies were most concerned about green initiatives (30%) and staffing (24%).
ESG Disclosures
When it comes to the types of ESG disclosures companies are currently providing or plan to provide, the survey found that Diversity, Equity and Inclusion (DEI) was the top focus (95% for public companies and 63% for private companies).
In addition, public companies are most often disclosing information regarding board oversight of environmental and sustainability issues (78%) and ethical business practices (75%), while private companies are focusing on ethical business practices (50%) and community involvement/charitable giving and human capital management (both at 44%).
The survey also found that three-quarters of public companies are including ESG disclosures in their annual reports, on their company websites and in sustainability reports (76% each). Internal communications (48%) and proxy reports (24%) also factor into public company communications.
Private companies, meanwhile, reported relying mainly on internal communications (31%), along with their company websites (22%) and sustainability reports (17%) when making disclosures.
Industry and Company Size
When broken down by industry, the Financial Services industry appears to be leading the charge in terms of considering ESG a critical business objective and having a strategy in place. No respondents in the industry chose the option of “no ESG strategy and no plans to adopt,” the report notes.
Real Estate respondents reported that 29% considered themselves leaders and 43% had an ESG strategy in place. Health Care industry respondents reported the largest percentage of “no ESG strategy and no plans to adopt” (38%), but had an equal number of respondents with a strategy in place.
Meanwhile, the Manufacturing industry reported the second lowest on “no ESG strategy in place and no plans to adopt” (12%), with the greatest percent (37%) reporting that they plan to adopt an ESG strategy in one to two years.
Not surprisingly, companies with less than $50,000 in annual revenue do not consider themselves to be on the forefront of ESG and 29% have no current plans to implement ESG strategies. While leadership and implementation numbers were high in larger companies, 27% of surveyed companies approaching $500 million in revenue and 6% of companies over $1 billion still had no plans to implement, Thompson Hine notes.
In contrast, companies with revenue between $500 million and $1 billion were all-in on ESG, either currently or planning to implement ESG in the near future.
