Latest News from the Hydrogen and Carbon Capture Industry
August 16, 2021
What is ESG?
Environmental, Social and Governance (ESG) investing evolved organically over several decades as a method to influence ‘responsible or sustainable’ behavior in companies. It is supplementary to financial profit metrics used by investors. Advocacy groups use ESG concepts to alter consumer-buying preferences. For example by highlighting ‘green’ products.
While definitions vary and continue to evolve the following issues are accepted core components of ESG:
Is ESG another fad?
Possibly, but the definition of ESG is becoming more accepted and consistent. There are issues with creating metrics on most of the ESG objectives. Business sectors have very different issues and thus focus on ESG objectives. Service sector companies view working conditions as important, while manufacturing companies place emphasis on pollution. Unlike financial reporting metrics, one size will not fit all. Financial GAAP reporting took decades to evolve, ESG will likely as well.
Securities reporting the next ESG driver?
In April 2021, the European Commission adopted ‘a comprehensive package of sustainable finance measures, with rules and proposals encompassing ESG reporting requirements for companies, fiduciary duties relating to sustainability risks, and the EU Taxonomy classification system for sustainable investments’. This will be required from 50,000 companies in the EU.
Just like the European Commission, the US Security and Exchange Commission (SEC) has been asked by investor groups to for more corporate disclosures on climate change and other ESG issues. In July 2021, the SEC adopted recommendations by the ESG subcommittee. Similar ESG efforts are underway globally.
What is reported gets attention!
Once ESG metrics become a shareholder reporting requirement, it will migrate to day-to-day operations. It will start slowly but we all know reporting requirements only increase over time. Prepare – the ESG era is coming!
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