New environmental, social, and governance (ESG) standards could cause more companies to call on their tech departments to meet regulations.
- Proposed U.S. Securities and Exchange Commission (SEC) changes could mean ESG reporting could have more serious implications, beginning the end of April.
- The SEC proposal would require companies to report how their operations affect the climate and influence carbon emissions.
- As a result, IT departments will need to focus on properly handling data related to ESG requirements, as it will now be included in financial reporting.
- Passage will likely be difficult as Republican lawmakers oppose the new regulations, and businesses will likely sue over the new requirements, IT Brew reports.
- New requirements would mean heavy investment into new teams and systems to change how companies file reports.
Why it’s news
If companies are forced to start reporting ESG data in a similar way to their current financial reports, businesses could have another significant expense during a time when many are trying to reduce costs.
Full reporting would include analyzing the company’s supply chain, including manufacturing, shipping, and distribution.
Some companies have already been reporting ESG data independently, but these proposed regulations would mean starting from the ground up for those who have not.
“For companies who haven’t been doing any of this, it is a scramble. You need robust software tools that can calculate, determine, measure, monitor, manage all of this information,” explains Sphera Solutions CPO Mike Zamis.
Companies will need a strong IT department to put all the information together. No system exists to compile the necessary data for those who have not been collecting this data. Some companies, such as Benchmark Digital Partners, have started building up their program to make switching to meeting SEC requirements manageable.
Breaking down the debate
Near the end of February, Republican lawmakers reached out to SEC Chair Gary Gensler concerning the proposed changes to ESG reporting.
“Congress created the SEC to carry out the mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation—not to advance progressive climate policies. Instead of pursuing its clear statutory mission, the SEC, under your leadership, has chosen to flout the democratic process and pursue its progressive social agenda through the promulgation of this extraordinarily expansive climate disclosure rule,” the letter said.
Gensler tells CNBC that the goal of the changed regulations is to require public companies to establish a climate transition plan.
“Some companies have targets (on) how to manage this,” Gensler says. “And it was: if you have something, just disclose it and sort of describe it so that the investing public has the material features of those plans in that regard.”