ESG reporting in finance: a guide for US professionals.

The world of finance is abuzz with ESG, and for good reason! Environmental, Social, and Governance (ESG) factors are reshaping how businesses operate and how investors make decisions. If you're a finance and accounting professional in the US, staying ahead of the ESG game is no longer an option - it's a necessity.

This article is your guide to understanding the growing significance of ESG reporting in finance and how it affects you as a professional and a leader. We'll explore its many benefits for companies and investors alike, and delve into how regulatory changes, reporting frameworks, and cutting-edge technology are transforming the financial landscape.

ESG reporting goes beyond traditional financial metrics to provide a holistic view of a company’s performance. It examines:

• Environmental: How a company manages environmental risks and its impact on natural resources.
• Social: The quality of relationships with employees, customers, and communities.
• Governance: The robustness of corporate governance, risk management, and ethical practices.

ESG reporting provides a complete picture of a company's performance, going beyond just the numbers. It shows how a company handles important aspects like environmental risks, relationships with employees and communities, and how well-run the company is. 

This information is valuable for investors because it helps them make smart choices about where to put their money. It also shows that you're walking the talk, not just overpromising with environmental, social, and governance commitments.

ESG reporting goes further than traditional financial metrics to provide a comprehensive view of a company's performance. It offers valuable insights into how a business manages environmental risks, its relationships with employees and the wider community, and the strength of its corporate governance structures. 

For finance and accounting professionals, ESG reporting is increasingly crucial for several reasons:

• Enhanced reputation and trust: Demonstrating a commitment to sustainability builds confidence among investors, customers, and other stakeholders.
• Risk mitigation: Proactive ESG reporting helps identify potential risks—environmental liabilities, social controversies, or governance lapses—that can affect financial performance and market reputation.
• Improved financial performance: Companies with robust ESG practices are often better positioned for long-term success, attracting investments that value sustainability alongside financial returns.
• Attracting and retaining talent: Today’s workforce is increasingly drawn to purpose-driven organizations that prioritize ethical practices and sustainability.
• Competitive advantage: In a market where both consumers and investors are more discerning, transparent ESG reporting distinguishes companies from their competitors.

The US is witnessing a rapid increase in the importance of ESG reporting. In recent years, businesses have encountered growing expectations to provide transparency regarding their environmental, social, and governance (ESG) performance. Nevertheless, particularly within the United States, where ESG remains a divisive topic, certain organisations are expressing scepticism about the advantages of dedicating resources to ESG data collection and disclosure. These companies are uncertain about the intrinsic value and potential business benefits of comprehensive ESG reporting.

The Securities and Exchange Commission (SEC) is actively working on climate-related disclosure rules, and several states have already implemented their own ESG regulations. The SEC is refining its climate-related disclosure rules and ESG reporting requirements to ensure comprehensive transparency. Finance professionals should monitor these evolving guidelines closely, as non-compliance can lead to fines and reputational risks.

While there is no single global standard for ESG reporting, several frameworks are widely used in the US, including:

US standards.

• California Senate Bills (SB 253 and SB 261): SB 253 targets companies with over $1 billion annual revenue, mandating comprehensive emissions reporting from 2026-2030. Companies must progressively disclose Scope 1, 2, and 3 emissions with increasing levels of assurance. SB 261 applies to companies with over $500 million annual revenue, requiring climate-related financial risk reports every two years starting January 2026. Companies must publicly disclose their climate risks and adaptation strategies.
• SEC Proposed Climate Disclosure Rule: Requires all public companies to report climate-related financial information within their financial statements and related footnotes. Disclosures must include financial impacts of climate events and transition activities.
• Federal Supplier Climate Risks and Resilience Proposed Rule: Categorizes federal contractors into major (>$50M contracts), significant ($7.5M-$50M), and other (<$7.5M) groups with varying reporting requirements.

international standards:

• Sustainability Accounting Standards Board (SASB): Offers industry-specific standards for material ESG issues relevant to US companies.
• Task Force on Climate-related Financial Disclosures (TCFD): Provides recommendations for climate-related disclosures, gaining traction in the US.
• Global Reporting Initiative (GRI): A comprehensive framework for sustainability reporting, widely used by US companies.

legislative shifts and political context.

After Donald J. Trump’s re-election for a second term, the political landscape has experienced notable shifts. While some in Congress have pushed for deregulatory measures, the momentum behind ESG reporting has persisted due to increasing pressure from investors and the public for greater corporate accountability. Key legislative proposals continue to emphasize robust ESG disclosures, ensuring that companies remain responsive to both market demands and regulatory scrutiny.

This means finance and accounting teams are integrating ESG considerations into their traditional financial controls. This includes updating risk assessment methodologies and financial reporting processes to capture non-financial performance indicators.

What is more, adapting to the regulatory and political environment means aligning strategic objectives with ESG imperatives. This approach not only ensures compliance but also promotes long-term resilience and competitive strength.

Technology is revolutionizing ESG reporting in the US, making it more accurate and efficient. From streamlining data collection and analysis to automating report generation, technology empowers companies to better manage and communicate their ESG performance. Technology is transforming ESG reporting by:

• Streamlining data collection: Advanced analytics and AI-driven tools automate the gathering and processing of ESG-related data, enhancing accuracy and efficiency.
• Automating report generation: Innovative software solutions are now capable of generating comprehensive reports that integrate both financial and ESG metrics, providing decision-makers with real-time insights.
• Enhancing transparency: Digital platforms facilitate the real-time disclosure of ESG performance, reinforcing trust and accountability with stakeholders.

The rise of ESG reporting is transforming the financial landscape in the US, creating both challenges and opportunities for finance and accounting professionals. By embracing ESG reporting, developing relevant skills, and leveraging technology, you can become a valuable asset to your organization and contribute to a more sustainable future.

1. what is ESG reporting in finance?

ESG reporting involves disclosing a company's performance on Environmental, Social, and Governance factors, providing a holistic view beyond just financial metrics.

2. why is ESG reporting important for US finance professionals? 

It's important due to increasing regulatory requirements, investor interest, and its impact on reputation, risk management, and long-term financial performance.

3. what are some key ESG reporting frameworks used in the US? 

Key frameworks include SASB, TCFD, GRI, and US-specific regulations like California Senate Bills (SB 253 & SB 261) and SEC proposed rules.

4. how does ESG reporting benefit companies? 

It enhances reputation, mitigates risks, attracts talent, improves financial performance, and provides a competitive advantage.

5. how is technology impacting ESG reporting? 

Technology streamlines data collection, automates report generation, and enhances transparency, making ESG reporting more accurate and efficient.