April 25, 2024
On Wednesday, April 24, 2024, GRF brought together a panel of leading industry experts to provide a comprehensive overview of ESG, including current trends and regulations for measuring, monitoring, and reporting on Environmental, Social and Governance (ESG) initiatives. The half-day summit was jam packed with actionable information and advice.
Save the date!
GRF’s ESG Summit 2025 is coming up on Thursday, April 24, 2025, from noon to 3pm. Details coming soon.
ESG Overview
The terms “sustainability” and “ESG” are often used interchangeably but have distinct focuses. The term “sustainability” generally refers to operating to meet the needs of the present without compromising the ability of future generations to meet their own needs. On the other hand, “ESG” focuses specifically on evaluating and measuring a company’s performance and practices in the areas of environmental impact, social responsibility, and corporate governance. ESG criteria are often used by investors, analysts, and stakeholders to assess the sustainability and ethical practices of companies. It’s important to note that while ESG focuses on internal company practices, sustainability often considers impact from an external stakeholders’ perspective, a concept known as double materiality.
The regulatory landscape is extensive, with many sustainability frameworks in place. Some are compliance-driven mandates, while other frameworks are structured for voluntary disclosures.
Regulatory requirements include:
- Corporate Sustainability Reporting Directive (CSRD)
- Securities and Exchange Commission Enhancement and Standardization of Climate-Related Disclosures
- Requirements recently enacted by the State of California
Frameworks for voluntary disclosures include:
- Stakeholder driven:
- Global Reporting Initiative (GRI)
- Carbon Disclosure Project (CDP)
- Investor driven:
- Task Force on Climate Related Financial Disclosures (TCFD)
- International Financial Reporting Standards Foundation (IFRS)
- Sustainability Accounting Standards Board (SASB)
- International Sustainability Standards Board (ISSB)
To quantify the amount of greenhouse gases (GHG) that your organization releases into the atmosphere, all frameworks focus on carbon emissions. This is because carbon dioxide does not break down in the atmosphere for centuries, so limiting its release is most critical the health of the planet.
When measuring GHG emissions, the standard framework is broken down into three scopes.
- Scope 1 “Burn” = Fuels you burn directly;
- Scope 2 “Buy” = Fuels you consume but don’t directly produce; and
- Scope 3 “Beyond” = Fuels burned in your organization’s supply chain, like business travel (upstream) or distribution of your product (downstream).
DEI Overview
If we learned anything last year, it’s that the social landscape for Diversity, Equity, and Inclusion (DEI) can evolve and change quickly. DEI policies cannot remain stagnant. Despite the current backlash making the news, the trends indicate that DEI-based initiatives still have value:
- 4 in 5 Job seekers and employees value diversity at companies and among coworkers.
- 76% of women surveyed by Glassdoor in 2022 view corporate investment in DEI is important when considering a job.
- 60% of C-suite leaders surveyed by HR Executive in January reported expanding their DEI initiatives, 33% maintained their level of effort, and only 1% said they significantly decreased their activity.
DEI Initiatives to consider include investing in Employee Resource Groups, host educational events, aligning DEI with your organization’s business strategy, and keeping your staff informed of your goals and progress.
U.S. Government Sustainable Procurement and ESG Policies
Proposed Rule Regarding Disclosure of GHG Emissions
The Federal Acquisition Regulatory (FAR) Council issued a proposed rule in 2022 that, among other things, requires disclosure of GHG emissions for certain contractors.
- Significant contractors are contractors that have $7MM-$50MM in federal contract obligations in the prior federal fiscal year. These contractors must inventory their Scope 1 and 2 emissions and disclose those emissions in SAM.gov on annual basis.
- Major contractors are contractors with $50MM or more in federal contract obligations in the prior federal fiscal year. These contractors must inventory and disclose their Scope 1, 2, and 3 emissions on an annual basis, in addition to other requirements such as completing an annual climate disclosure and setting emission-reduction targets.
- Emission-reduction targets must be validated by the Science Based Targets Initiative (SBTi).
These GHG reporting requirements for U.S. government contractors are still under review by the FAR Council, but the final rule will be in place later this year. Even if the FAR rule is not enacted as-is, agencies are taking it upon themselves to require GHG reporting as part of the contract engagement. Prime contractors may start requiring their subcontractors to report on carbon emissions as part of their Scope 3 emissions reporting.
At the state level, GHG reporting requirements have been enacted into law in California, and there are pending requirements in New York, Illinois, and Washington.
New Rule Regarding Sustainable Products and Services
In a new action, the U.S. Government is formally seeking sustainable, green products. As of Monday, April 22, a final rule was issued that requires federal agencies to acquire sustainable products and services “to the maximum extent practicable.” For example, they should prioritize the purchase of “carbon-free electricity” or Energy STAR products. Agencies are required to proactively research sustainable options and include these preferred requirements in their procurement RFPs. They may also ask offerors to disclose their sustainable product use.
Upcoming Rule Regarding the Social Cost of GHG Emissions
The “social cost” of GHG emissions is the estimated economic damage caused by GHG emissions and this cost can be used in government procurement criteria. This has the potential to influence future award decisions.
National Action Plan on Responsible Business Conduct
In March, the U.S. Government issued a National Action Plan on Responsible Business Conduct. This plan directs federal agencies to implement robust processes for reporting human rights violations that occur in the federal supply chain, and draft new guidance regarding suspension and debarment of contractors that violate human rights protections. This does not have an immediate impact on government contractors, but it does indicate a trend toward greater accountability for existing human rights standards and potential new requirements.
How to get started? ESG Assessments
A great way to understand where you are currently in your ESG journey and where you want to go is an ESG Risk Assessment, sometimes called “strategic assessment” or “materiality assessment.”
Steps of an assessment include:
- Identify the risks that are relevant to your organization. To identify ESG risks, consider:
- Regulatory requirements
- Grant or donor requirements
- Feedback from stakeholders
- Benchmarking against competitors
- Prioritize these risks and determine what the organization will act upon. Prioritization tactics include:
- Using a risk scorecard
- Evaluating the impact on stakeholders, or company reputation
- Degree of regulatory compliance
- Risks required to be addressed in order to comply with an ESG framework
- Report on the results, keeping in mind the intended audience.
If your organization has a board of directors, they should guide and approve the ESG strategy and goals, and then review ESG reports.
GRF Can Help
No two industries are the same, and there is no “one size fits all” approach to ESG. GRF’s advisors can work with you to implement an ESG strategy that aligns with your organizational goals and industry standards. Our team will help you stay on top of evolving ESG requirements and help integrate ESG with related governance, compliance, and risk mitigation initiatives.
