There is no Greta Thunberg for governance.
The controversial Swedish activist has helped keep environmental issues top of mind for much of the world — as has a steady drumbeat of companies and countries issuing Net Zero promises, to say nothing of a relentless series of climate-related natural disasters.
With all that, it's hardly a surprise that the Securities and Exchange Commission last year issued a wide-ranging proposal around climate disclosure requirements, or that regulators and standard-setters around the world seem so far to have been focusing primarily on the "E" in environmental, social and governance reporting, leaving the "S" and the "G" somewhat in the shadows, with no high-profile activists or natural disasters to shine a spotlight on them.
"Climate has really dominated the conversation, based on the rules that are happening both in the U.S. and globally," said Kevin O'Connell, the ESG trust leader at Big Four firm PwC. "And that's really around greenhouse gas emissions, around decarbonization, etc."
But that may start changing soon, with interest in reporting in areas like workforce diversity, employee health and safety, cybersecurity and other social and governance concerns on the rise.
As an example, O'Connell noted that the SEC is expected to issue a draft set of rules this spring around human capital reporting. "That will continue to increase the amount of conversations around that particular topic," he said. "And then governance — from our perspective, certainly board governance and board diversity have been a significant issue. I think all the boards are trying to figure out how to govern effectively all of these new rules and regulations that companies are being required to comply with in these new topics."
Company management may still need some education in those areas, however. In the recent Global Sustainability Reporting Survey from KPMG, 43% of the Fortune 100 acknowledged climate change as a business risk, but only 13% acknowledged social elements, and only 4% saw governance as a risk.
"The question is whether they feel like they have those risks appropriately mitigated and they aren't as concerning, or if they just don't believe that some of these risks will have a material impact on the business," said Maura Hodge, the ESG audit leader at KPMG.
Either way, she makes the point that governance, at least, may not be as behind the curve as it might seem at the moment.
"I think the G has always been there, so I don't want to say that it got tacked onto the acronym, because there's always been this understanding that good governance is important to a company," she said. "And so that has been evolving naturally over the past five to 10 years, with SEC requirements to disclose information about the boards and their capabilities and their expertise and things like that. I think they're starting to expand a little bit with cybersecurity, so I think G has kind of always been there and will just kind of continue to evolve a little bit more within the frameworks of disclosure."
When it comes to the S, though, "I think there's still some work to be done in terms of understanding what are all the components of social, and what are are people and investors actually looking for," she explained. "The primary focus, I think, has been really on diversity, equity and inclusion, and disclosure of that type of information, but I would say that we're starting to also talk more about health equity. I think as we talk about the E and a just transition, how is that impacting people around the globe?"
Hodge made the point that climate change and greenhouse gases have an impact on the whole world — and a disproportionate impact on the poor — which makes them social issues as well. Similarly, any climate-related transition plans are likely to have social elements that need to be accounted for.
Kristen Sullivan, the global audit and assurance sustainability and climate services leader at Deloitte, elaborated on the ways all three elements are connected.
"The way we look at the intersection of the E and the S in particular, and then the G, which is so foundational to really driving a strategic lens and a risk oversight … we really think that the E and the S are much more related than many would suggest."
As an example, she cited the sorts of human rights risks that might be involved in a supply chain, from worker health and safety to water rights and pollution concerns.
"There's such an interplay of the S and the E in a lot of different ways," she continued. "There's a lot of emphasis on environmental justice and social justice and thinking about the intersection where underserved communities in a lot of cases are more impacted by climate events, and so we try to bring that much more integrated approach to how a company really defines ESG for its organization, and then how that lends itself to public positioning commitments and then, ultimately, to high-quality, credible disclosures."
That, of course, suggests major opportunities for accountants and auditors in preparing or attesting to corporate reporting on social and governance concerns — regardless of whether they can find a young activist with a savage Twitter game to highlight them.
For more, see our feature collection on
