What ESG means for your organization

by Darin Styles, CPA, CFE

Although the environmental, social and governance (ESG) framework has existed for nearly two decades, reporting business practices related to it is a relatively recent development. Some public organizations have been reporting on ESG for several years but most private organizations have yet to start. Currently, there is not a U.S. requirement for businesses to disclose or report on ESG initiatives. However, we expect this to change as the concept of ESG gains traction and stakeholders come to demand its disclosure.

To help your business or organization prepare for the potential of regulatory shifts, here’s what you should know about the current state of ESG.

What is ESG?

In a nutshell, ESG offers a framework for looking beyond an organization’s financial statements to its environmental, social, and governance principles and practices. These could include initiatives such as using sustainable materials, committing to social responsibility, and employing a diverse workforce. An ESG audit could report on those and other metrics as part of a financial statement audit or as a standalone engagement.

Who should consider ESG reporting?

Any type of business or organization can engage in and report on ESG activities, but ESG may be more relevant to those that already comply with strict environmental or other regulations, such as manufacturers or those in the financial services or healthcare industries. Cities and local governments are likely to also prioritize ESG when evaluating vendors, particularly in regard to initiatives related to anti-discrimination.

What are the benefits of reporting ESG initiatives?

At a certain point, implementing, tracking, and reporting your company’s ESG initiatives simply makes good business sense—for both your brand and bottom line. Considering Generation Z’s and Millennials’ tendency to embrace ESG, highlighting your ESG efforts can serve to not only attract talent but also to differentiate your organization from its competition.

From a tax standpoint, taking steps to strengthen your company’s environmentally friendly, employment, and human resources practices can provide opportunities for tax savings, such as the following:

• Research and Development (R&D) Tax Credits
• Qualified Opportunity Zone Tax Credits
• Deductions for Energy-Efficient Building Improvements
• Investment Tax Credit
• Low Income Housing Tax Credit

Enhance your company’s future by embracing ESG

ESG is where the business world is headed. It’s not something you can ignore, even if you aren’t currently required to report it. Of course, adopting ESG isn’t something you can do overnight.
Setting a plan now for how your business will implement, track, and report ESG initiatives is critical to preparing for the future. At the least, highlighting your efforts in continuous improvement can help to set your business apart.

How can Abdo help?

Thinking about how to incorporate ESG into your business’ operations can be overwhelming. The good news is you may be already following ESG practices, especially if you’re operating within the manufacturing industry.

At Abdo, we can conduct an ESG audit that will pinpoint practices in your business related to ESG as well as appropriate key performance indicators. We’ll guide you through the process of tracking and reporting these metrics, so you’re ready for whatever comes next. Reach out to our team today to discuss.