ESG checklist for your IPO

An ESG strategy is an essential part of the IPO process. Organizations can take a few key steps to create, update, or maintain their ongoing strategy.

• Invest time in a materiality assessment. Performing a comprehensive materiality assessment is an important component of identifying and prioritizing the ESG topics that most affect a business. Engaging with key stakeholders – investors, customers, employees, ratings agencies, and regulators – through research, surveys, and interviews helps provide critical insights to guide the organization’s disclosure road map.
• Create a cross-functional ESG team. ESG touches almost every area of a business, so the creation of a cross-functional ESG team is vital to help plan and execute a company’s ESG strategy. A successful team includes members from operations, financial reporting, legal and risk management, investor relations, information technology (IT), environmental health and safety, and other representatives throughout the business. The team might grow as the company matures and stakeholder demands change.
• Create a plan for ESG – now and into the future. ESG obligations evolve, especially during the transition to an IPO. An ESG plan can help business leaders understand current obligations while writing the blueprint for potential expansion into new geographies through mergers and acquisitions and acquiring new customers. Organizations might also consider how to create, maintain, and update required reporting when expansion happens. Maturation of IT systems and data processes is also related to ESG compliance, so companies can build programs with strong internal controls to support investor-ready reporting.

ESG regulations vary by industry and geography, and they’re constantly evolving. Regulatory exposure increases when a company goes public, so it’s vital for leaders to be up to speed with requirements. Following are a few strategies that can help:

• Identify which current ESG-related regulations apply to the business. Some organizations might already be subject to certain regulations as a private company. Whether it’s conflict minerals requests from customers, California’s climate reporting rules, perfluoroalkyl and polyfluoroalkyl substances risks, or the Securities and Exchange Commission’s (SEC’s) final climate-related disclosure rules, a reliable process is necessary to manage which regulations apply to each business. Organizations might also note any voluntary commitments and disclosures that have already been made regarding ESG efforts and might be subject to the scrutiny of the SEC’s Climate and ESG Task Force.
• Create a continual ESG compliance process. The shift from private company to public entity brings a whole new world of direct regulatory obligations. ESG compliance is not a one-and-done exercise – it’s an ongoing process. That means business leaders want to track proposed regulations while also creating a plan for how the company will manage ESG compliance moving forward.
• Consider the opportunities. Developing an ESG strategy isn’t all about costs and risks, and pursuing a comprehensive plan offers many benefits. For example, companies measuring emissions might find the results lead to better energy procurement practices, and enhanced risk management can create opportunities for reduced insurance costs. Green lending arrangements can offer creative ways to finance sustainability projects at lower interest rates, creating an attractive bottom line for new investors. Strong ESG compliance programs can enhance a company’s reputation with customers and protect revenue streams. Knowing these opportunities up front can help business planning be more effective.

One more challenge for company executives remains: Having all the necessary subject-matter expertise and support systems in house to effectively navigate new and evolving ESG demands and regulations. A cross-functional team can extend to include third parties that offer the right mix of IPO and ESG experience. These parties can help create a custom plan that fits each business’s specific short-term needs while going public, as well as any long-term needs to maintain ESG compliance.

ESG requirements, regulatory obligations, and initiatives likely will continue to rapidly emerge and change. Taking a proactive and dynamic approach to understanding and meeting ESG requirements can help set up a business for success during an IPO pursuit.