Workiva’s Amply Conference 2024 took place in September in Denver, Colorado. The annual event gathered almost 3,000 accounting and financial sector professionals from throughout North America to share ideas, learn best practices, and familiarize themselves with new products. This year’s conference had a heavy focus on sustainability and environmental, social, and governance reporting. As an attorney practicing and advising in the legal development of ESG, it was a unique opportunity to gather a comparative perspective on implementation from the accounting side.
As a result of the 2015 Paris Agreement and subsequent United Nations initiatives, there has been a global focus on tracking the climate impacts of businesses. Pressures on businesses to disclose their climate and environmental policies came from international investment firms, activists, and consumers. Initially, companies jumped onto the concept voluntarily, drafting their own sustainability reports and ESG reports. Due to a lack of regulatory oversight, the reports were inconsistent and were little more than marketing materials to be placed on a company’s website. Companies included whatever they thought made them look best, from environmentally friendly actions to LGBTQ+ policies.
As interest from investors grew, there was a growing demand for reporting regulations. However, it was unclear under what sector the reporting standards should be placed. Eventually, it settled in the financial sector, along with other disclosures relating to the financial viability and actions of companies. This resulted in the financial industry being forced to learn and anticipate an entirely new regulatory scheme.
The International Financial Reporting Standards Foundation, the organization that drafts accounting standards used by 130+ jurisdictions around the world, formed the International Sustainability Standards Board to draft the IFRS Sustainability Reporting Standards. Those standards were released in 2023 to be adapted and adopted by jurisdictional financial regulators. In the U.S., where IFRS is not used, the Securities and Exchange Commission adopted a climate risk reporting rule in early 2024, only to be met with various legal challenges and delayed indefinitely. California adopted its own climate reporting standards, and various other left leaning states like New York and Michigan are following suit.
As regulations were developed, the social and governance categories of ESG reporting were lessened in focus. Instead, the reporting of greenhouse gas emissions, or carbon reporting, took center stage. Focus was also placed on risk factors relating to climate change and environmental impacts. In the U.S., social and governance were not factors in the reporting rule.
Workiva provides financial reporting software to approximately 70% of Fortune 500 companies. With the rise of ESG reporting, and its placement in the financial sector, they geared up to meet the demand of their customers. This was evident in their annual conference.
The Workiva Amplify Conference 2024 had a theme of Ready for Anything. Panels covered standard topics from the financial and accounting industry, ranging from auditing processes to how to use Workiva’s reporting software. However, a major focus of the conference was ESG and sustainability, including how the financial and business sectors are having to adapt.
For me, the invitation to attend was an opportunity to see an alternative perspective in implementation. I got involved in the legal side of ESG and sustainability as a bit of a fluke. I was asked by the American Bar Association to author a chapter in a book on, what would later be called, ESG investing. That began years of advising businesses, governments, and NGOs on the legal complexities of ESG and sustainability for businesses. I also pull from my political experience to read the tea leaves for how future regulations will develop and identifying potential risks. I’m not an advocate, I’m an advisor. However, my perspective is limited. I view it through the lens of an attorney with a business background. That is reflected in my counsel and in how I write for Forbes. There is a value in alternative perspectives and direct insights. Following are five takeaways on ESG from being an attorney at an accounting conference.
Despite setbacks, ESG reporting is moving forward.
Anti-ESG sentiment has risen globally, including in the European Union where there is a concern that the Corporate Sustainability Reporting Directive will be rolled back following the recent elections. However, anti-ESG sentiment is strongest in the U.S. where conservative states have enacted laws to derail the ESG and sustainability movements. The SEC’s climate risk reporting rule is currently delayed due to legal challenges and, in my opinion, is unlikely to survive the current Supreme Court. Media outlets and republican elected officials have declared ESG dead.
However, that sentiment was not shared by attendees and panelists of the Workiva Amplify Conference. Businesses are gearing up for sustainability reporting as if no delays exist. The accounting and financial sectors are moving forward with preparations. The mentality is that it is happening, one way or another, and that they should go ahead and start complying.
Notable, some panelists, like Christina Thomas, an attorney and partner at Kirkland & Ellis LLP, urged companies to not hire a large staff to address climate reporting until a final rule is in place. However, that mentality was a minority at the conference and within the financial industry.
Sustainability doesn’t fit in finance or accounting.
In a live recording of Workiva’s The ESG Talk Podcast, Katherine Neebe, Chief Sustainability Officer at Duke Energy, addressed the inclusion of climate reporting under the financial industry. She stated it “looks like a duck, quacks like a duck, but its not really a duck.” Explaining that climate reporting is being patterned to look like financial reporting, but it isn’t really. It doesn’t quite fit that mold.
This is a new beast that ended up being thrust onto the financial industry. They are adapting, and a new subsection of the accounting field is being created to handle reporting and risk assessments. However, it doesn’t fit. This is problematic in the early stages of sustainability reporting when the responsibility falls to the Chief Financial Officer or the Chief Accounting Officer.
In multi-national companies, we are seeing a rise in Chief Sustainability Officers. That has not translated to smaller companies, yet. Sustainability experts frequently decry the lack of CSOs and dedicated teams. Surprisingly, many companies have yet to shift the responsibility to the CFO or CAO, leaving it to random departments. In others, they have hired climate change advocates rather than experts, and it shows in their reporting documents.
Sustainability doesn’t fit squarely in the financial sector, so expect to see c-suite and executive level sustainability positions to be more commonplace as demand increases. Also, look for a standardization of qualifications for those positions as regulatory requirements are enacted.
Companies are not working cohesively to address sustainability.
There is a high level of compartmentalization of sustainability within companies. Sustainability experts often complain about lack of resources. However, the issue goes further. The gathering of information for sustainability reporting and the overall strategy for sustainability and climate policies seeps into every area of a business. Many companies have yet to fully embrace the complexities of sustainability. Instead, they are pushing it off to an individual or small team to figure out.
There is a disconnect between the board, c-suite, executives, legal, and the sustainability team. This is problematic for companies. As noted below, there is a risk in sustainability reporting. Allowing sustainability to operate independently and unchecked could open a company to various legal and regulatory repercussions. Alternatively, if a company wants to actively engage in sustainability, it requires cooperation from the top down. There is no middle ground.
This was evident in a conversation I had with Annalise Di Santo, a Senior Analysist of Sustainability for Energy Recovery, following her participation in panel on Workiva’s new carbon reporting program. Di Santo was describing the amount of work needed to gather information to use in carbon reporting, including the need to track the annual mileage of vehicles. She noted this required a change in mentality to get a company to begin logging and sharing the mileage of a vehicle the date purchased, then following up to get updated information for reporting.
While that may seem like a simple example, it includes multiple moving parts within a complex business and the development of new reporting policies to allow access to the needed information. It also requires sharp experts like Di Santo, who studied science and sustainability, to use the data along with existing GHG reporting protocols to calculate the needed information. Most companies are not at that level and are not having the right conversations with the proper experts.
Companies are not adequately considering the risk of sustainability reporting.
The reality of sustainability reporting is that it is being driven by advocates. People that care passionately about climate change and environmental issues and believe companies have an overriding responsibility to address those concerns. Yet, that is only one aspect of the consideration.
In my conversations with attendees of the conference, I would frequently ask what their in-house attorneys said about ESG and sustainability reporting. The answers were mixed. For a few, their attorneys were reviewing the documents. Some said they were advised to not create the reports. Far too many said legal was not involved. This is both alarming and not surprising.
Simply, in-house counsels are typically so overwhelmed with their daily legal work that they do not have time to review sustainability actions. Some very large companies have hired in-house counsel dedicated to addressing ESG and sustainability regulations, but that does not seem to be the norm. A colleague of mine was recently laid off when the Fortune 100 company she worked for cut the ESG legal position, despite rising regulatory schemes. There is also a lack of interest in hiring outside counsel to address these issues, as the risks are not yet fully transparent in the legal field.
Fortunately, Workiva included attorneys with knowledge on this in a few panels, providing the necessary legal insight. Something I felt showed integrity in their presentations. However, I heard at least one snarky comment about involving attorneys in sustainability decisions. It highlighted a division and disconnect between sustainability actions and the legal risk of disclosing unnecessary or inaccurate information.
Notably absent from the conference were any direct references to greenwashing, climate washing, the EU’s Corporate Sustainability Due Diligence Directive, or the various legal and regulatory enforcement actions being taken against companies for their climate change materials and policies.
However, the rising importance of accurate reporting was addressed by Jonathan Johnson, former CEO of Overstock.com, in Workiva’s SEC Pro panel. In response to a question about the rising importance of sustainability reporting, Johnson stated that ESG was an opportunity, but is becoming table stakes. “It is changing what people are doing to try to distinguish themselves to something they must do.” As a result, companies have to “do it just right.” However, Johnson noted the broader importance, stating “it is more than just checking box, it is doing the right thing.”
In a conversation after the panel, Steve Soter, Vice President and Industry Principle at Workiva, expressed a similar opinion relating to the shift to “table stakes.” Companies are coming to terms with the transition and the need to report properly.
In my opinion, companies are operating without those considerations because there has not been a pivotal case to cause a panic. Once someone faces a catastrophic penalty, companies will shift their mentality.
There are a lot of unanswered questions and confusion.
The reality is that regulations are still being drafted and there will a lot of uncertainty until things settle. It is unrealistic to expect anyone to have a full grasp on the complexities. Unfortunately, there are a lot of misconceptions that are leading to confusion.
In one panel, attendees were asked to raise their hand if they are currently subjected to the EU’s CSRD. An alarming number of participants raised their hand, especially when you consider that reporting standards for non-EU companies have not been drafted by the European Financial Reporting Advisory Group and implementation has been delayed. In another panel, a panelist inaccurately described what qualifies as a stakeholder in the EU. These are reasonable mistakes at this point, but they highlight how those tasked with addressing sustainability reporting are uncertain what the requirements are and will be.
Those within the financial and accounting industries that are tasked with figuring out sustainability reporting are faced with a daunting task. There are not enough existing experts to fill the eventual demand, and I’m not sure many companies understand the demand exists. Most attendees of the conference were less than confident in the direction their companies should be taking on sustainability reporting. Those that were confident probably shouldn’t be.
In the EU, the CSRD was first adopted in 2022, going into force in 2023. EFRAG went straight to work on drafting the European Sustainability Reporting Standards for large EU based companies. The first set of ESRS were released in the middle of 2023, but further development was delayed. The task was too great and companies we unclear how to comply. The European Commission directed EFRAG to shift focus on providing more guidance for the existing ESRS. Over a year later, they are still providing that guidance. Two years after the CSRD was adopted at the EU level, multiple EU member states have yet to adopt it into national law or implement the ESRS. In other words, this is more complicated than it seems.
In the U.S., no standard has been adopted. The SEC rule is suspended indefinitely and will probably never go into effect. The state level regulations are just beginning to be developed. Yet, a lot of people in the financial sector are being forced learn something that doesn’t completely exist. This is going to lead to a lot of confusion until final guidance is released, which may not occur for many years.
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