As one of the emerging trends in the public sector – and all industries, really, environmental, social and governance (ESG) has left many business and government leaders feeling confused (“What is ESG?”), uncertain (“How does ESG impact us?”) and overwhelmed (“Where do we even begin?”).
With these legitimate concerns in mind, Baker Tilly recently hosted an ESG-focused webinar, the first in a two-part series this month. Principal Scott Miller and David Erdman hosted a comprehensive discussion on the impact and importance of ESG.
The key topics from the webinar are summarized below.
ESG is an umbrella term that encompasses environmental, social and corporate governance strategies, reporting and action plans that impact an organization’s sustainability.
As ESG is reviewed and discussed further, it becomes evident that many typical governmental tasks and functions are very similar to those included under the ESG umbrella. The ESG concept has gained momentum in recent years due to increased international investors’ interest in corporations’ disclosure and transparency on these issues. These days, ESG is now a critical focus within the U.S. market and has been embedded in organizations’ and governmental entities’ operations and strategies.
Leadership teams everywhere prioritize ESG initiatives– internally and externally – as they strive to connect with their customers and employees, seize growth opportunities for their organization, and of course, make a genuine impact from a sustainability standpoint.
In fact, therein lies the importance of ESG. In the past, it was viewed as a responsibility. Now, corporate stakeholders and governmental leaders see an opportunity to create more sustainable operations while building relevancy and trust among their internal and external stakeholders. As importantly, data indicate corporations with ESG strategies have outperformed their counterparts.
In short, ESG creates value within organizations, communities and the planet for years to come. The key components of ESG go way beyond basic sustainability. As it exists today, ESG includes such concepts as:
These concepts are not new, of course, but ESG combines them under one framework that is simultaneously core to an organization’s mission, values and strategy while also being critical to its long-term sustainability.
The list of ESG stakeholders – parties genuinely invested in an organization's sustainable strategy – can be quite lengthy. It typically includes:
Of note, within the regulator’s category is the SEC’s proposed rule that public companies must disclose greenhouse gas emissions, climate-related risks, impacts, and risk management processes within their registration statements and annual filings. Naturally, this rule also impacts private companies and government entities that are in the supply chain of larger public companies.
The global market for interest in ESG and sustainable funds has exploded in the last five years to more than $2.2 trillion. Furthermore, some market data continues to suggest that funds placing a higher priority on ESG have done slightly better than those that don’t prioritize ESG factors.
The growth of ESG in the municipal bond market can be seen in numerous ways, including:
The general popularity of ESG is expected to continue in 2023, although some could speculate that ESG will underperform this year despite the various metrics indicating that ESG continues to grow in popularity. In either case, virtually everyone agrees that ESG is not going away.
The first step in developing an ESG strategy is ensuring that multiple parties across your organization have a seat at the table. Bringing department leaders together, including your Finance, Legal and IT departments, is important because the strategy should include the desires, needs and opinions within the organization as a whole.
As an organization, you need to keep in mind that ESG has quantifiable benefits across many key areas, such as:
ESG planning also provides non-quantifiable benefits to businesses. For example, ESG allows organizations to:
A basic ESG framework outlines the high-level steps an organization needs to take in order to create and maintain an ESG strategy.
Additionally, organizing your entity’s focus on ESG better positions you to take advantage of additional sources of funding.
For instance, the Inflation Reduction Act (IRA) offers $738 billion in funding and $499 billion in new spending through 70 separate tax credits (that are effective through 2032). The IRA impacts virtually all entities and their sustainability, ESG and renewable initiatives.
Finally, bond designations such as green bonds and social bonds are available as well.
Many types of projects/financings are eligible for a green designation, including
Social bond projects include those that:
Baker Tilly can assist with every step of your organization’s ESG journey, including services targeted toward municipal finance, energy strategies, planning strategies, risk assessments, financial transparency and assurance.
To discuss how Baker Tilly can help your organization move forward with its ESG and sustainability initiatives, contact our team.
Going beyond responsibility to value and opportunity, we provide comprehensive and industry-focused ESG program advisory and assurance from development to execution.
