Proposed data-driven ESG reporting regulations may lead to more work for IT departments

Everything’s connected to tech these days—even federal regulations. But with changes to environmental, social, governance (ESG) standards on the way, that may mean extra hours on the job for the IT department, and more tech spending from companies looking to comply with the new regulations.

Thus far, ESG reporting has been voluntary. But the SEC rules will change that, and there may be significant consequences, said Mike Zamis, CPO at Sphera Solutions.

“If the SEC regulations pass, as they’re currently written, that will become a big regulatory obligation,” Zamis said. “Up to and including the CFO going to jail.”

IT professionals are going to be needed to handle data as ESG requirements are added to existing financial reporting. Locating, calculating, and reporting the ESG KPI data is going to become part of the day-to-day for C-suite operations.

Roll up those sleeves. The rules were initially scheduled to be delivered in October 2022, but are now expected by the end of April. And when they do arrive, it’s unclear how they’ll hold up—GOP lawmakers are trying to ban the practice, and Zamis predicts a flurry of lawsuits from businesses.

It’s not hard to see why. The new requirements could mean a sea change in how companies file reports and will involve investing in teams and systems to make those changes—the kind of decision that makes the C-suite, often disinclined toward change in the first place, uneasy.

“That’s exactly what’s got every CFO and treasurer worried right now—that, ‘I’m going to have to manage carbon emissions data like I manage financial reporting. I’m going to have to create a general ledger of sustainable information and measure that over time,’” Zamis said.

For companies that have already been embracing ESG voluntarily, it’ll be an easier switch. For others, less so.

Datasets related to ESG aren’t going to be tied together by a common theme—as none yet exists, in most cases—so there’s a lot of manual work to do in order to find the necessary information and group it together.

“For companies who haven’t been doing any of this, it is a scramble,” Zamis said. “You need robust software tools that can calculate, determine, measure, monitor, manage all of this information.”

Where IT fits. That all costs money, and will involve IT departments making space to adjust to the new reality. But it doesn’t have to be painful—as Reuters reported, there are options for companies that don’t involve a wholesale restructuring of their systems from the ground up.

Benchmark Digital Partners CEO R. Mukund noted that a piecemeal approach, starting now, could set companies up for meeting SEC requirements without the upheaval from a full-on switch.

“You can do a bunch of stuff before you have to do that really heavy lift, because that last lift is a heavy lift,” Mukund told Reuters. “You can’t minimize how significant that lift is, to go out and reach out to suppliers, because you’re also being contacted for that same information if you are in the supply chain.”—EH

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