Pay Attention to ESG Ratings and the Potential Impact to Your Business

October 14, 2022 | Elections in Iowa Eric Remus, Managing Principal, CLA, eric.remus@CLAconnect.com

Environmental, social, and governance (ESG) efforts have become a key factor in how businesses are evaluated. The environmental component relates to the business impact on the environment, including carbon emissions, water usage, green energy initiatives, and other related initiatives. The social component includes employee diversity, human rights, consumer protection, and other impacts on your workforce and customer base. The governance component relates to the management structure, executive compensation, board diversity, and other measures directed by governance.

DOES ESG IMPACT MY BUSINESS?

While businesses subject to SEC reporting have been addressing ESG ratings and disclosures for a few years, there are indications that the impact of ESG continues to trickle down to privately held businesses. Some impacts may be direct, including the inability to obtain financing from lenders or capital contributions from investors if your business could have a negative impact on their ESG rating. Other effects may be more difficult to identify or quantify, such as reputational risk and the corresponding impact on sales or difficulties recruiting and retaining talent if your company is viewed as having a negative ESG impact on the community. .

WHAT STEPS CAN MY BUSINESS TAKE TO ADDRESS ESG CONCERNS?

While direct action is likely not necessary for privately held businesses that don’t have to report and respond to ESG ratings, there are steps that can help your business move in the right direction. Aligning your strategic business plan with ESG measures can allow you to make incremental changes over time without having a significant impact on your business’s bottom line.

For more information on ESG in Iowa, contact Eric Remus at eric.remus@CLAconnect.com or 515-346-3661.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com.

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