Though a majority of middle market businesses have made progress preparing for environmental, social and governance-related regulations, many are opting to see how the U.S. election pans out before taking further action, according to the results of a recent survey released Monday by consulting firm RSM.
Some 75% of respondents said their firms have taken such steps as training staff and and investing in technology as they prepare to comply with new rules, while the vast majority (84%) said they are monitoring developments in the sustainability arena before taking further action and over half (56%) indicated they are waiting specifically on the results of the U.S. election, according to the survey’s findings.
The study focused specifically on how companies are preparing for the U.S. Security & Exchange Commission's climate disclosures rule, temporarily stayed after being passed in March; California’s Climate Corporate Data Accountability Act; Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act; and the European Union’s reporting and due diligence directives on corporate sustainability.
These measures were generally controversial and still present some level of uncertainty, whether due to recent legislative amendments, unclear guidance, legal uncertainty, and implementation delays, according to Anthony DeCandido, a partner and co-lead of RSM US’s sustainability service solutions practice.
When it comes to the SEC’s climate disclosure rules specifically, organizations strongly believe that the election has thrown the initiative’s future into question and that, should former President Trump win the White House, the entire regulation will be diluted at best, or scuttled entirely, DeCandido said in an interview. The SEC climate rule is a big priority item for Democrats, but not for the Republicans, he said.
“I think you see that [56% finding] reflects middle market leaders who say, ‘Maybe just wait and see, given how many times this has been on and off again, why allocate resources or budget for something still not certain?’” DeCandido said.
While he acknowledged an ongoing backlash against business sustainability concepts, pointing to recent legislation in Florida as an example, that pushback has mostly affected how much organizations trumpet their efforts in this area versus anything operational.
“It does not so much matter where a business leader stands in their ideation of its importance, because the regulations have taken form enough where you must do something,” he said. “We used to do work for companies because their customers cared about it, their suppliers cared about it, maybe their employees made some noise. Now it’s more like the acceptance of this as being a global regulatory priority and why so many companies had to organize as such.”
Some companies aim to prepare for these regulations internally, which can involve training and education for staff and leaders and changes in the organization’s policies. Sometimes this can involve bringing on a dedicated executive taking the role of chief sustainability officer; while DeCandido said this is not as common as it is in the Fortune 500, there are middle market companies also creating the position in their governance structure.
Other companies look outwards for the needed expertise, often on a temporary consulting basis. Organizations doing this believe the adoption curve will be heavy in the first 12-18 months but will then level off once processes and infrastructure is in place, and so such consultants are largely brought in to set the foundation.
Regardless of whether regulatory preparations are an internal or external process, DeCandido said the CFO remains vital.
“CFOs have a substantial oversight role because of the sheer fact that, in many of the cases, these nonfinancial metrics need to accompany the basic core set of financials,” he said. “Very few are playing the role of preparer, but all of them have oversight responsibilities of what is included in those financial statements.”
The report’s findings are based on a survey conducted from Aug. 27 through Sept. 3. of 303 U.S. and 109 Canadian companies. The survey focused on companies with revenues between $40 million and $10 billion.
