Understanding your carbon footprint and your company’s impact on the environment have been part of PR campaigns and some state regulations for years. New SEC regulations are pending requiring US corporations to catch up to European environmental reporting standards. It is time to start tracking and start planning, as your first public ESG disclosures may be due next year.
What does ESG stand for?
ESG stands for Environmental, Social and Governance. These 3 areas measure a company’s Environmental Impact, Social Impact and how the company is Governed to manage these impacts. As the world becomes more global and more inclusive there is mounting pressure for Corporations to take their place in the discussion.
The EU is leading the way requiring ESG disclosures from companies to evaluate the sustainability and ethical impact of a company’s operations.
Measuring Environmental Impact
A company’s environmental impact is measured as their direct or indirect impact on the planet. This includes their carbon footprint, other types of pollution, energy efficiency, and use of natural resources.
Elements that contribute to the E of ESG are:
- Use of Renewable energy
- Greenhouse Gas (GHG) emissions- scope 1, 2, and 3
- Energy consumption and efficiency
- Pollution control
- Water use
- Waste disposal and recycling processes
Measuring Social Impact
The S of ESG measures a company’s impact on society. This is a reflection of how a company treats its employees, customers, suppliers, and the communities in which it operates.
Metrics that are used for Social Impact reporting include:
- Health and safety
- Work conditions
- Employee benefits
- Diversity, equity, and inclusion
- Human rights
- Impact on local communities
ESG and Corporate Governance
The G of ESG is Governance. It requires disclosures about a company’s internal management and decision-making processes. This helps ensure that leadership is accountable to shareholders, investors and employees. They are designed to ensure that an organization abides by government regulations and operates with integrity.
These disclosures include information on:
- Ethical standards (purpose, values, culture)
- Board diversity and governance
- Internal controls and risk governance
- Stakeholder engagement
- Shareholder rights
- Executive compensation and payment
- Political contributions
- Disclosure and transparency
Book a Discovery Call with Cameron Linares
our InvoiceBotz and ESG Specialist
Do companies need ESG programs?
The short answer is Yes. Climate change, resource scarcity and “black swan” events have increased public scrutiny and underlined the need for companies to implement ESG programs.
Enterprises are already being required to comply with increasing global regulations regarding corporate ESG data reporting. The EU, UK, China and Hong Kong are amongst many countries that have already implemented mandatory disclosures.
The U.S. Securities and Exchange Commission (SEC) is developing requirement for expected implementation in 2023-2024. For now, ESG reporting is still primarily voluntary in the US coming from pressure from stakeholders to do the right thing.
The initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules. The task force will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.– SEC Announces Enforcement Task Force Focused on Climate and ESG Issues – March 2021
When do companies need to start tracking ESG?
The time to start tracking is now.
The SEC set up a task force in 2021 to begin auditing corporate disclosures. A list of their existing enforcement actions can be found here. They will also be overseeing the implementation of the expanded Environmental regulations as they come into effect.
Drawing from the TCFD framework, the proposals would provide investors with consistent, comparable, and decision-useful information for making investment decisions.– S&P Global
Understanding a company’s environmental impact allows leaders to make ethical decisions and guide future planning. Starting tracking early allows companies to remedy any surprising or unfavorable findings before disclosures are required to be made public with the coming regulations.
Understanding Scope 1, Scope 2 and Scope 3 Greenhouse Gas Emissions
A barrier to successful implementation of an ESG program is access to the right environmental impact data. Scope 1 emissions, direct pollution and greenhouse gas emissions are already being tracked in many industries by the Clean Air and Water Act.
Scope 2 and Scope 3 emissions tracking are new and affect all businesses, not just the dirty ones. In this rapidly evolving regulatory climate, the challenge becomes establishing a way to extract and tag the data while keeping up internal processes.
Intelligent Automation can help prevent companies from getting swamped in the mass of regulations, frameworks guidelines, and calculations. Digital workers provide the agility required to prepare reporting for country specific, sector specific, and regulatory body specific reporting.
The Role of Finance Departments in Calculating Scope 2 Emissions
Scope 2 emissions are the indirect environmental impact of doing business. It measures impacts like:
- How clean is the energy a company buys
- How much water does it use each year
- What is spent on heating and cooling offices
Finance and accounting departments may hold the key to successful Scope 2 emissions calculations. Much of the needed information for Scope 2 Reporting can be gathered from Utility bills and other corporate invoices.
InvoiceBotz is an invoice processing automation software that uses AI to read and understand invoice data down to the line item. It can understand complex utility bills and attribute spend to each cost type, location, and vendor. With automation, the tagging and storing of ESG data can be performed as each invoice is being processed for payment. This efficiency reduces both time intensive processes to moments, creating huge ROI.
InvoiceBotz and Evolving Scope 3 ESG Regulations
Scope 3 may be the largest category of GHG Emissions for many companies, as it covers all environmental impacts not covered by Scope 1 and 2. Scope 3 emissions measurement standards are still being defined across 15 categories.
Scope 3 measures the upstream and downstream impacts of doing business and of choices companies make. An upstream impact might be the sustainability of the packaging materials a company uses for its products. A downstream impact may include the distance and method a company uses to ship their products, or how often they fly their people.
InvoiceBotz is equipped to capture this data from company expense reports, shipping manifests, or supplier invoices. The ability to read more than just invoice documents allows InvoiceBotz to become a complete solution for your ESG compliance needs.
Staying continually up to date on the evolving reporting and compliance demands can become a full-time job. Presently there are several frameworks for defining and measuring Scope 2 and 3 emissions. InvoiceBotz has you covered. Having your company’s expense data tagged correctly allows that data to be formulated into ESG reports for multiple frameworks and sector specific reporting demands.
Stay ahead of new regulatory compliance and understand your carbon footprint with ESG Reporting from InvoiceBotz
Yes, Environmental impact reporting regulations have already been passed in Europe and are currently being framed by the SEC for implementation in the US. As mandatory reporting evolves, investors are already demanding disclosures related to a company’s ESG performance and risk.
ESG regulations mean that companies will be required to report to their investors on their Environmental and Social impact, as well as how they are internally Governed. As regulations loom in the United States, now is the time to start tracking these impacts so that any unfavorable findings can be corrected before disclosures are required.
No. ESG reporting regulations have already been implemented in many countries including the EU, China, Hong Kong and the UK. In the United States the ESG Task Force has already been created by the SEC, and new Environmental impact disclosure regulations are pending.
ESG disclosures are prepared for company stakeholders and investors to inform them of a company’s environmental, social, and governance performance and risks. New Environmental disclosures are being added for Scope 1, 2, and 3 greenhouse gas emissions. ESG disclosures will be primarily prepared by Finance and Accounting departments.