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Environmental, Social, and Governance (ESG) metrics serve as an essential cornerstone for evaluating business and investment practices, revealing a company's holistic impact on the world. With 22 U.S. states having implemented ESG-specific legislation as of August 2023, the regulatory landscape emphasizes the integration of ESG risk management, disclosure, and enforcement.
The importance of ESG is underscored by its integration into investment and business decisions. Emphasizing long-term sustainability and risk mitigation, materiality assessment plays a pivotal role in isolating the ESG elements that are most relevant to specific industries and operations.
Federal agencies, from the Department of Labor to the Securities and Exchange Commission, shape the ESG regulatory spectrum in the U.S. Their collective efforts span a range of initiatives, from promoting ESG investments to ensuring organizations remain prepared for potential disasters through ESG considerations.
With the ESG landscape evolving rapidly, agencies such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) offer comprehensive guidelines, setting the benchmark for industry-standard ESG metrics and reporting.
Stakeholder interest in ESG has surged, emphasizing the imperative for companies to adopt responsible, sustainable practices. Investors, customers, and employees alike demand transparency and responsibility.
Various organizations provide ESG ratings and rankings for companies, which can influence investment choices and reputation.
Several frameworks, such as the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), guide ESG metrics and reporting.
ESG considerations are viewed as critical for long-term business sustainability, risk mitigation, and competitive advantage.
The federal agencies involved in ESG in the USA include the Department of Labor, the Securities and Exchange Commission, the Financial Stability Oversight Council, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Office of the Federal Chief Sustainability Officer.
The Department of Labor (DOL) has taken steps to regulate ESG as the federal regulator of private-sector employee benefit plans. The DOL has issued a final rule to remove barriers to considering environmental, social, and governance factors in plan investments, which allows retirement plan fiduciaries to account for the potential financial benefits of investing in companies committed to ESG.
The Securities and Exchange Commission (SEC) is planning to require greater ESG disclosure requirements for corporations.
The Federal Reserve Board, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) have been prompted by the Financial Stability Oversight Council (FSOC) to consider ESG risks and opportunities.
The Federal Housing Finance Agency (FHFA) has been actively working to ensure that the regulated entities are accounting for the risks associated with climate change and natural disasters while also overseeing the regulated entities' work related to Environmental, Social, and Governance (ESG) broadly. FHFA established an internal Climate Change and ESG Steering Committee, consisting of the Agency's leadership and eight working groups staffed with experts from across the agency on various areas related to ESG.
The Office of the Federal Chief Sustainability Officer (CSO) leads the development of policies, programs, and partnerships to advance sustainability and climate resilient Federal operations
Global Reporting Initiative (GRI) is a leading organization that sets global standards for sustainability reporting. It provides guidelines and frameworks for companies to report on their ESG performance.
The Sustainability Accounting Standards Board (SASB) focuses on industry-specific sustainability accounting standards, helping companies disclose material ESG information in a way that is relevant to their industry.
The Carbon Disclosure Project (CDP) is known for its work on environmental disclosure. It encourages companies to disclose their carbon emissions and climate-related data.
Principles for Responsible Investment (PRI) is a global initiative supported by the United Nations that encourages investment institutions to integrate ESG factors into their investment decision-making processes.
MSCI provides ESG ratings, indexes, and analytics that help investors assess ESG performance in their portfolios.
FTSE Russell offers ESG indexes and data services to support ESG investing.
Sustainalytics is a research firm that offers ESG ratings and research to help investors and companies assess ESG risks and opportunities
Institutional Shareholder Services (ISS) provides governance, proxy voting, and ESG solutions for investors, as well as ESG ratings and analytics.
Corporate Sustainability Assessment (CSA) by S&P Global assesses companies' sustainability performance and is used to compile the Dow Jones Sustainability Index (DJSI).UN Global Compact: The UN Global Compact is a voluntary initiative for companies to align their strategies and operations with universal principles on human rights, labor, environment, and anti-corruption.
The Carbon Trust helps organizations reduce their carbon emissions and develop sustainable practices.
Center for Sustainable Organizations (CSO) is known for the Integral Accounting framework, which aims to incorporate ESG factors into financial accounting.
The ESG landscape is intricate, with industry-specific considerations, challenges in data collection, and potential trade-offs between different ESG elements. Understanding these nuances, from greenwashing to the subjective nature of some ESG factors, is vital for companies aiming for genuine, impactful ESG integration.
