On August 9th, the United Nations commemorated the International Day of the World’s Indigenous Peoples. Indigenous communities play a key role in biodiversity conservation and climate change mitigation, as they are the stewards of about ⅘ of the planet’s biodiversity. The UN places a particular emphasis on Indigenous youth as they are the future of Indigenous conservation efforts, but opportunities for them are still lacking. Corporate engagement with Indigenous communities is crucial, as many industries operate on Indigenous land such as mining, water, oil and gas, and more. A balance is needed between economic opportunities and conservation efforts, and strategies must include cooperation and engagement.
1. New cybersecurity disclosures passed by SEC. The United States Securities and Exchange Commission voted 3-2 to finalise proposed rules on disclosure of cybersecurity risk. In 2022, over 80% of companies had two or more data breaches, and overall data breaches have jumped 600% since 2010. These breaches cost the United States trillions of dollars. The SEC first released guidance on cybersecurity in 2018, but these measures serve in addition to rather than instead of the previous ones. These new rules state that companies are obligated “to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance.” Refer to the press release and final rules for more detailed information.
2. Affirmative action in the boardroom. At the end of June, the United States Supreme Court ruled that affirmative action at colleges and universities was unconstitutional. Affirmative action is a policy meant to increase diversity and equity in higher education, but the Supreme Court banned institutions from taking race into account in the application process. While this does not affect corporate board rooms, there is a risk of lawsuits that target corporate DEI policy coming before the court in future. Companies may see more public backlash against their diversity strategies, leading to less diverse board rooms and employee pools. One way organisations can avoid this is to work to increase diverse talent in the application pool rather than only considering diversity once applications are reviewed.
3. ESG due diligence plays a significant role in mergers and acquisitions. A survey of investors and professionals in mergers and acquisitions by KPMG found that ESG factors are increasingly important in closing deals. Over half of respondents shared that poor ESG strategies could cause a deal to fall through or cause extra closing conditions to be added. 44% shared that a lack of action on ESG reduces the value of an organisation. On the flip side, more than 60% of investors surveyed said they would pay extra for mature ESG strategies that align with their own goals. ESG due diligence will only become more and more common, and organisations that fail to address such issues will lose out significantly.
4. S&P Global no longer uses ESG ratings for credit assessments. In the past, S&P Global would assign an ESG rating of 1-5 when scoring credit quality. Moving forward, it has announced it will no longer update ratings and instead assess credit in credit rating reports. The ESG ratings were introduced in 2021, and were meant to “illustrate and summarize the relevance of ESG credit factors on our rating analysis”. This move may have come on the heels of a wave of anti-ESG legislation in the United States, as Florida has recently adopted a law banning ESG factors from being considered in investment decisions.
5. Lack of climate action may cripple fossil fuel-dependent countries. Fossil fuel producing countries such as Colombia could find themselves in dire economic straits as efforts towards a global energy transition intensify. A report by Willis Towers Watson found that by failing to shift towards a more environmentally friendly economy, the country could lose over US$80 billion, or almost 30% of its GDP in 2019. While the report only focuses on Colombia, these results could be extrapolated to other fossil-fuel dependent developing countries in similar economic situations. With fossil fuel dependence expected to drop around the world in this century, economic models that rely on oil and gas extraction will suffer.
Ira Srivastava is Competent Boards’ Program Coordinator. Follow Competent Boards on LinkedIn.
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