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ESG for Private Companies: What You Should Know

October 17, 2022

Have you considered your unique advantages as a private company integrating ESG into your business planning and ongoing operations? We explore here.

Although there has been a lot of publicity around the SEC draft legislation proposal for public companies, there is also mounting state-level regulatory and market pressure to begin calculating and reporting GHG emissions and other ESG metrics for all organizations, including privately held businesses.

While private entities face a variety of pressures with constrained resources, there are some specific advantages private companies have over public companies when it comes to implementing ESG practices. You might think that adding considerations around ESG to your Company’s agenda may seem like a waste of time, however, there are specific advantages that private companies should be thinking through when it comes to exploring ESG initiatives. Some of the most important considerations are outlined below.

4 Key Advantages

  • Competitive advantage- Private companies are free to manage their competitive advantage as they see fit, unlike public companies who are held to the expectations and demands of their investors. This allows private companies and their key stakeholders to assess what metrics are most important or most material to their specific business and be somewhat flexible in their adoption approach. Early adopters have another level of differentiation and market advantage.
  • More time to focus on long term investments- Without heavy third-party influence, private companies can focus on long term investments in sustainability practices that have a lasting impact on the business and its financials as opposed to focusing on short-term trends or daunting required reporting considerations. Although there are certain metrics that are worth exploring that are published by institutions such as the Sustainability Accounting Standard Board (SASB), private entities can use ESG initiatives to create long-term value.
  • More flexibility- Along with this, private entities may have greater flexibility in how the results of their ESG metrics are communicated to outside parties. Whether this will be internal, shared on your website, or used as a tool for improving relationships with customers, suppliers, or employees, right now, this can be used however you see fit.
  • Set up for success in the future- While the availability of a supplier’s ESG performance data and a supplier’s ability to demonstrate improvement in ESG metrics may not be a driving force now for supplier selection, there is a pretty good chance that it will be in the future. As a lot of private companies serve as suppliers to larger operations, it will be important to be able to produce some of the information they will be looking for to be considered for or remain on their Approved Vendor List.

Adopting ESG into your daily practice may seem like an overwhelming task, however, factoring in some of the most important metrics within your existing financial processes may not be as time-consuming, or as challenging, as you think. A good way to assess this is having a snapshot of your ESG landscape completed by an expert, who can summarize your business operations in ESG terms. From there, identifying specific targets and creating a strategic action plan to address the material portions of your operations affected by ESG becomes easier.

In summary, ESG is not just a public company exercise and private companies should begin taking steps now to implement ESG initiatives.

Here at KLR, we are ready to help you integrate an Environmental, Social and Governance lens when making operational decisions and thinking about your future plans. Contact us to learn more.

Interested in getting started with ESG investing? KLR Wealth can help. Check out their blog, What is ESG (Environmental, Social and Governance) Investing?

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