Midmarket companies occupy a unique place in the ESG landscape. Caught in a maelstrom of escalating pressure from buyers and the regulations currently taking shape, they are seeking a foothold to mitigate risk – and rightfully so.
ESG is front and center for large organizations. Eighty percent of Russell 3000 companies discussed ESG as part of their Q1 earnings call this year. And where these companies go, so goes the midmarket: nearly half of organizations with at least $250M in annual revenues have recently taken up ESG initiatives, according to a Nasdaq survey.
Why Pursue ESG?
For midmarket companies, the answer is often simple. They’re in an enviable growth position and often own their niche or customer base. But they are also pulled into global trends set by large multinationals. In this case, ESG and sustainability concerns are increasingly on the front burner:
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- If they want to conduct business across borders, they need to report on ESG factors.
- If they want to attract investor capital – whether public or private – they need to answer the ESG expectations of shareholders.
- If they want to compete for players in the large company talent pool, they need to take sustainability and social issues seriously.
Barron’s struck on the inevitability of ESG for companies all along the supply chain.
“The European Union’s Corporate Sustainability Reporting Directive, for example, is going to affect many American companies doing business in the region.
“Today we have multiple GAAP standards globally and multinationals have to disclose their financial information in all the countries they operate in,” said Paul Volpe, head of ESG solutions at Workiva. “We’ll likely see the same for non-financial data.”
Meanwhile, midmarket companies are beset with RFPs and shareholder proposals probing for formal ESG pillars. Whether seeking evidence of human rights policies, diversity, equity, and inclusion, or environmental data, requests are piling up for ESG elements that most midmarket companies simply don’t have in place – or at least organized in a way that enables a credible response.
The temptation is to tackle inquiries or proposals as they arrive, resulting in a permanently reactive posture. That’s difficult to maintain and in the end, feels a little like a continuous game of whack-a-mole.
Avoiding Whack-a-Mole
Mid-markets can and should get beyond that stage. Now that it’s crystal clear that ESG is evolving directly into their space, there are steps they can take to mitigate the chaos. Stepping back to assess needs at a higher level not only puts them in a position of strength when responding to immediate needs, it also gives them a head start on the SEC’s pending climate disclosure rule.
There may be plenty of noise about declining interest in environmental, social, and governance (ESG) themes, but the global business community has not slowed its momentum. Europe’s call for greater transparency together with the inclusion of ESG frameworks into IFRS accounting guidelines creates an unmistakable magnetic pull.
It’s time to take action. Sustainability reporting is a significant organizational undertaking with long-term implications. Just as with other initiatives, taking the time to understand goals, requirements, timelines, and investments is a natural path to better outcomes.
Where to start? Check out our paper on how to lay the foundation, Respond, Don’t React: why fragmented sustainability programs are costing companies time and money.
