Later this year, new rules are expected to be issued, standardizing what and how large public companies report on ESG (environment, social and governance).
Even if your business is not subject to these rules, it will likely feel the impact, so it’s a good idea to get acquainted with ESG and start preparing (or updating) your own ESG plans now.
As previously reported by RBT CPAs, “This October, the Security and Exchange Commission (SEC) is expected to issue rules to standardize how companies assess, measure, manage and disclose ESG related risks, including emissions resulting from assets not owned or controlled by a reporting organization. So, even if you aren’t subject to SEC rules, someone may be asking for your ESG measures for their own reporting purposes.
Investors want information about it. Clients are looking for it. Lenders and credit rating agencies may consider it and it’s becoming a growing part of insurance and regulatory conversations. Communities judge by it, as do employees and recruits. It can impact business valuations and capital raising, and increase interest from larger organizations looking to grow through mergers and acquisitions.”
Let’s look at what this means specifically for manufacturers. A recent Forbes.com article, entitled ESG Principles: Why Manufacturers Must Embrace Sustainability (Henrichsen, Jorge Gonzalez. July 11, 2023), defines ESG for manufacturing this way: “Environmental principles refer to a company’s environmental impact, including its carbon footprint, waste management and energy consumption. Social principles refer to a company’s impact on society, including employee welfare, diversity and inclusion, and community engagement. Governance principles refer to a company’s internal policies and procedures, including transparency, accountability, and risk management.”
It goes onto say, “Pressure continues to mount on manufacturers to meet these sustainability standards, a chorus joined by governments, boards, investors and consumers.”
At the same time, though, one of the biggest motivators for getting on the ESG bandwagon is very simply that it’s good for business. It can help your business operate more efficiently, identifying new ways to get work done and reducing waste. It can help you attract and retain talent – employees feel good about working for a company that genuinely cares about them and the planet. And, it can even help you compete and lead you to new business opportunities, as buyers look to source locally (and reduce fossil fuel use for transportation, for example) and look for businesses that can contribute to their ESG goals (by using more sustainable packaging, as an example).
Another Forbes.com article — Behind All The ESG Virtue Signaling, There’s A Real Opportunity For Manufacturers (Karp, Ethan. March 31, 2023) – discusses three ways small manufacturers can jumpstart their ESG plans:
- Adopt industry 4.0 technology. “Sensors help factories increase machine efficiency on the production line and reduce fuel consumption. Automation can increase profits and employee safety. If manufacturers look for opportunities to use technology to simultaneously improve the bottom line and advance ESG, it will make significant Industry 4.0 investments even easier to justify.”
- Innovate using ESG. Numerous start-up manufacturers are building their businesses around an ESG value proposition, both in terms of what they make and how they make it. As a result, they’re working smarter and tapping into the growing percentage of consumers willing to pay a premium for products that reflect ESG values.
- Focus on your supply chain. From increasing dependability and reducing the risk of ESG violations (i.e., using child labor) to promoting competitiveness and managing operating expenses, reinventing a supply chain to align with ESG values can offer numerous advantages.
We’ll provide more information when the new SEC rules and standards are issued this Fall. In the meantime, if you need time to focus on ESG plans and other work, remember, you can count on RBT CPAs to handle your accounting, tax, audit, and business advisory needs. We believe we succeed when we help our clients succeed. To learn more, give us a call today.
RBT CPAs does not outsource work to any other country. All of our work is prepared in the U.S.A.