Best Practices for Complying With New Mandatory ESG Regulations

In recent years, large U.S. companies have voluntarily focused on environmental, social, and governance (ESG) initiatives. The SEC’s new mandatory ESG regulations, announced in March 2024, and California’s recent disclosure laws signal that climate disclosures may not be an option despite legal challenges, as reported in an article by Fast Company. 

With the new wave of regulations, there is increased emphasis on improving ESG data quality. Large companies are already investing in people, processes, and technology to improve their ESG data governance and reporting processes. They are demanding high-quality, “audit-ready” data from their value chain to comply with the new regulations. 

Although small and medium-sized businesses aren’t the primary focus of the SEC, their role in the ESG landscape is crucial. To stay competitive, they need to collect their own sustainability data and adopt robust ESG data governance practices. Here are seven best practices they can follow:

1. Identify Ownership: Assign a dedicated person or team to oversee ESG data collection and reporting.
2. Implement a Reporting Framework: Use established frameworks like SASB, GRI, or TCFD, which align with regulatory requirements and provide helpful resources.
3. Be Proactive: Engage with major customers to understand their preferred reporting frameworks and requirements.
4. Invest in Technology: Use specialized ESG data collection tools to streamline processes and improve accuracy.
5. Build Skills: Hire experts in environmental science, ESG reporting, assurance, and/or internal controls, and offer cross-functional training to your staff.
6. Learn from Sarbanes-Oxley: Establish robust processes to ensure data quality and identify and remediate any issues that emerge.
7. Benchmark: Study industry peers with advanced ESG practices and evaluate whether they can apply to your organization. 

Early investments in ESG processes, technology, and expertise will position small- and medium-sized businesses to thrive as climate disclosure expectations transition from voluntary to mandatory. 

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