As we look down the road to 2024, Compliance expert, Tom Fox, recently visited several folks from Diligent to discuss key compliance issues that will persist into the new year. As part of a special podcast series sponsored by Diligent, “Compliance professionals adapting to change: Industries, regulations and beyond,” I chatted with Nicholas Latham, Renee Murphy, Jessica Czeczuga, Yee Chow and Alexander Cotoia.
Throughout this series, Tom has discussed compliance communications in regulated industries, managing conflicts of interest at the board level, the board’s role in compliance training and communications, navigating the current ESG landscape and professional growth and mentorship in compliance. In this fourth installment, we discuss the ever-evolving landscape of ESG with Yee Chow, Solutions Engineer at Diligent.
ESG and the evolving role of the CCO
The role of the chief compliance officer (CCO) has undergone a significant evolution in the realm of environmental, social and governance (ESG) compliance. What was once a secondary focus has now become a vital part of the agenda for global corporations. This shift has led CCOs to take on the responsibility of overseeing compliance with ESG standards at the highest organizational level.
One of the key factors driving this evolution is the rise in regulations and mandatory reporting on ESG factors. Governments, stock exchanges, and regulatory bodies have been pushing for mandatory reporting, which has brought new challenges for companies. They are now required to provide more detailed operational and value chain information. For example, companies are expected to report not only on their own climate impact, but also on the climate impact of their customers and suppliers. This increased level of reporting necessitates the gathering of extensive data, which can be a challenge for organizations.
To address these challenges, companies need to establish a clear leadership structure for ESG compliance. The specific structure may vary from company to company, but there are some key components that should be in place. Firstly, there needs to be a point of contact within the organization who is responsible for coordinating ESG efforts and ensuring compliance. This role is often filled by a sustainability professional who works closely with different business units. Secondly, there needs to be accountability for the ESG program, which often falls under the purview of the CCO or even the CEO. The accountability for ESG compliance should ultimately rest with the highest levels of leadership within the organization.
In addition to a clear leadership structure, companies are recognizing the importance of involving various stakeholders in the ESG compliance process. It is no longer the responsibility of a single department, but rather a team effort that involves all business units and leaders within the company. Committees are often established to drive the ESG strategy and agenda forward, ensuring that all relevant parties are involved.
The board’s role in shifting ESG responsibilities
Educating the board of directors on their role in ESG compliance is crucial. While not every board member needs to be an expert on the details of ESG, they should have a high-level understanding of its implications for business growth, drivers and regulatory compliance. ESG should be integrated into board meetings and discussions, driven by the compliance and regulatory space, as well as the demands of customers and stakeholders. This level of involvement from the board helps drive change within the organization and ensures that ESG compliance is taken seriously.
The evolution of the CCO’s role in ESG compliance is driven by the need to meet regulatory requirements, provide detailed reporting, and address the expectations of stakeholders. Companies are recognizing the value of non-financial data for business performance and opportunities. By establishing clear leadership structures, involving various stakeholders, and educating the board, organizations can navigate the challenges associated with ESG compliance and make informed decisions that align with their values and goals.
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