The SEC’s New ESG Task Force and How It Will Affect Businesses
Businesses aren’t just looking for ways to make money—they’re also looking for ways to do good. This trend is not just the right thing to do, it’s also good for business: a study by McKinsey found that companies that prioritize environmental and social goals can outperform their peers by as much as 20%. But in recent years, there has also been a rise in greenwashing and therefore, a push to provide meaningful and transparent Environmental, Social, and Governance (ESG) data.
What’s the latest with the SEC?
The US Securities and Exchange Commission (SEC) has announced a new task force to monitor how companies respond to ESG initiatives. The task force is a sign that the SEC will be taking a more active role in encouraging businesses to adopt environmentally-conscious practices and hold them accountable for their claims and actions.
With rising public interest in ESG initiatives, it is becoming increasingly important for companies to be able to demonstrate measurable impact. This means that they will need to be able to provide evidence that their efforts have the intended effect on the environment, society, or other areas of concern. It also means that they will need to be able to provide accurate data regarding these effects in order to prove their veracity.
Companies will have to disclose more about their environmental efforts
The SEC’s new ESG Task Force wants to make it easier for businesses to do good and make money simultaneously. The task force will focus on making sure companies stick to their stated missions for sustainable business practices and ethical investment, but it will also promote data-driven solutions that help businesses achieve those goals. The task force will be particularly focused on preventing greenwashing and other unethical practices that mislead customers about the sustainability of a company’s business practices.
It’s important to note that the goal of this task force isn’t just to punish bad actors—it’s also to reward businesses who are making an effort. The SEC plans on using data-driven solutions like machine learning (and human experts) to give companies better insight into how they can improve their policies and practices, so they can grow their profits while making the world a better place at the same time.
Transparency and honesty are key
In the age of climate change, a new set of standards is needed. The market size for green bonds has grown to $162.5 billion globally since they were first issued in 2007. Publicly traded companies are also being pressured by investors to become more transparent about their environmental efforts and have disclosed this information in their annual reports. Partnering with data-driven initiatives is one way for businesses to ensure transparency.
For SEC regulations to be effective, businesses will have to take action right now — before any new rules are in place. This includes conducting honest assessments of environmental policies and practices and being prepared to explain them clearly in reporting documents like annual reports or Form 10-Ks (annual reports filed with the SEC). Companies should start thinking about what information would be useful for investors so that when the time comes, there will not be any surprises or misinformation coming out about a business’s green initiatives or lack thereof.
Companies need to be aware that the SEC is serious about fraud in ESG claims
The SEC’s new task force will not only help protect investors from fraudulent ESG investments but also encourage companies to make more environmentally friendly decisions through increased disclosure requirements. More transparency from companies will likely result in an increase in capital allocation for ESG initiatives. In turn, that can only lead to a more sustainable world for all of us.
This is great news for anyone who wants corporations to be more transparent about their ESG efforts. But it also means that businesses need to get serious about collecting data in an easy-to-report way—and they need to start now! To explore data-driven solutions for businesses that are ESG compliant and money-saving, get in touch with Zen Ecosystems.
https://www.sec.gov/news/press-release/2021-42
https://www.worldbank.org/en/news/feature/2021/12/08/what-you-need-to-know-about-ifc-s-green-bonds
