ESG

The “real economy” is failing to make ESG progress, study finds

Private companies, the vast majority of the corporate sector, are lagging behind on ESG metrics as the movement focuses on reporting standards.
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While many public companies are chugging along attempting to quantify and collect their sustainability data for reporting purposes, it appears that private companies have neither identified the climate crisis “as a relevant matter nor acted on it,” according to a survey released in December by the Institute of Management Accountants.

In recent months, there has been heightened focus on gathering climate data, after the SEC unveiled a proposal that would require publicly listed companies to disclose their environmental risks for investors and wider stakeholders. Investors who have been calling for more data points on ESG—or environmental, social and governance—data, welcomed the SEC’s May 2022 proposal. Over the following months, however, some ESG critics have derided the proposal as an “unworkable,” reporting-heavy beast.

If IMA’s data set—clocking in at around 500 responses from accountants at private and public companies—is any indicator, accountants have much to do to develop “more mature management and accounting systems” that could identify climate risks and opportunities. The institute calls the current focus on publicly listed companies as overlooking the “real economy,” or private companies, a notable point as the vast majority of US companies are privately held.

Does public demand for net-zero carbon-emission plans and reporting obscure the real corporate climate progress? Perhaps. Public companies are perceived to be “larger and have more resources,” the accounting body wrote. Whereas, in reality, the majority of respondents to the IMA’s survey said they are not performing “any scenario or sensitivity analyses regarding climate-related risks.” And only a minority of responses say their boards pay regular attention to climate or ESG issues.

The green paper ends with an open-ended call for further inquisition and discussion into why companies, particularly private small and medium-sized businesses, have lagged behind public counterparts. Shari Littan, CPA, director of corporate reporting research and policy at IMA and co-author of the study, said there are “significant opportunities for businesses to shift from initial climate risk identification to the valuable activities of assessment, mitigation, and management.” Now, if only accountants and boards begin to believe that themselves.—KT

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The latest news and insights corporate finance professionals need to know to keep up with their constantly evolving industry.