In recent years, ESG priorities have come under fire in the US. Many opponents of ESG argue that these initiatives may divert companies from their primary focus on financial performance and shareholder value. Others take exception to perceived unfairness.
This kind of scrutiny is poised to intensify since American voters re-elected President Donald J Trump, installed a Republican majority in the Senate and retained a Republican majority in the House of Representatives.
As one example, consider HR 8706 - Dismantle DEI Act of 2024. In our conversations with ESG leaders at major corporations, the 2engage team has heard a recurring theme. According to right-leaning stakeholders, ESG teams are doing too much. But according to left-leaning constituents, these leaders aren’t doing enough. What are ESG leaders to do? Our answer: Stay the course, but with a strategic twist.
Some US politicians may want to keep chipping away at ESG principles. Yet ESG reporting is simply not optional for multinational companies. That’s because other jurisdictions – most notably, the EU member states – keep moving ahead with broader, more decisive requirements.
Going into 2025, ESG leaders at multinational companies have opportunities to think strategically about these global complexities. Tackling reporting requirements by region is inefficient and could leave you vulnerable to changing political winds. Instead, consider adopting a global approach with a single reporting structure that integrates and harmonizes all relevant standards and regulations.
At 2engage, we have developed Business Impact & Opportunities (BIO) reporting as a framework for pursuing this balanced global approach.
Is it time to transition from ESG to BIO reporting?
Think of BIO reporting as a structure for showcasing your company’s ‘biography’ of strategic success. It provides a framework for continuing to measure and leverage critical ESG data while aligning with existing requirements as well as potential legislative and/or cultural shifts.
BIO reporting is built around this three-legged stool
- Business reporting is your financial narrative that also addresses governance requirements. As always, it’s critical to prioritize reporting elements with direct ties to financial materiality. This element of BIO reporting should emphasize profitability, market relevance and shareholder value – while spotlighting your compliance with various governance requirements.
- Impact reporting is your chance to keep measuring and improving performance in meeting environmental and social targets. As climate, human rights, geopolitical and other risks become larger and/or more complex, continuing to track progress and be transparent about your approach will be key.
- Opportunities reporting offers an avenue for highlighting your leadership in sustainable development and an inclusive economy. Sustainable development is a priority in jurisdictions around the globe. And, regardless of political rhetoric, demographic trends make it clear that the US economy will become increasingly diverse. To thrive, your company needs diversity both in its workforce and its customer base.
You can adapt this BIO reporting framework to address relevant company and/or industry-specific requirements, as well as to navigate global reporting complexities, including the requirements of the EU’s Corporate Sustainability Reporting Directive (CSRD).
With this regulation – which took effect on January 1, 2024, and is being phased in over five years – the EU is mandating that organizations treat sustainability and social reporting with the same seriousness as financial reporting. The goal is for customers and investors to gain visibility beyond a company’s financial performance, giving clarity about an organization’s impact vis-à- vis climate change and human rights.
Regardless of how America’s political winds may blow, the requirements outlined in the CSRD mean that US-based companies with significant operations in the EU cannot afford to ‘pause’ on ESG principles.
Start building your BIO
As you continue planning for 2025 and beyond, consider why and how to craft your organization’s financial and operational ‘biography.’ If you aren’t sure where to start, reach out to 2engage.
