That the SEC’s decision came at a time when skeptics of the rising importance of environmental, social, and governance issues have questioned the relevance of ESG in a time of global crisis following Russia’s invasion of Ukraine makes it more noteworthy. While the new SEC rule, once finalized, will undoubtedly be challenged in court as a regulatory overreach, it is nevertheless an important signal of the growing relevance of non-financial metrics in measuring the long-term viability of public—and private—companies.

The SEC’s move is no outlier. European regulators have been out in front on climate disclosure, as have been some of the biggest public companies in their efforts to voluntarily define standards. C-suite executives and board members with whom I regularly interact know their stakeholders want to know what they are doing across ESG issues. In 2021, the number of ESG-related campaigns and the impact and success of investor activist campaigns rose compared to 2020. At a recent CEO conference I attended, ESG and climate remained front of mind for attendees—even amid the enormous geopolitical reshuffling set off by Russia’s invasion of Ukraine.

All manner of investors from institutional to individual are paying increasing attention to ESG. From Larry Fink’s 2022 Letter to CEOs to Morningstar’s decision earlier this year to strip the ESG label from more than 1,000 funds, recent actions show both increasing scrutiny of ESG claims and the salience of real-world ESG impact for investors of every size.

At a practical level, this means companies across the economy, whether public or private, large, or small, need to start taking concrete steps now to adapt to a world in which non-financial metrics matter more with each passing day – to regulators, investors, activists, employees, and consumers, among other critical stakeholders.

Meeting proliferating ESG demands means being able to define, implement, measure, and report across a wide range of non-financial metrics. To get there, business leaders and their teams must take at least four practical steps to:

• Treat meeting ESG metrics as a business imperative, embedded throughout their organization. It can’t be seen as an add-on, but rather must be a core business function. Leaders need to establish clear processes and procedures to communicate ESG goals; empower implementation; and create transparent reporting pathways back to the C-suite and board room to avoid any blind spots that could hide ESG risk.

• Measure ESG metrics, because you can’t manage what you don’t measure. Effective measurement lies at the heart of driving implementation. Without measurement there can be no accountability and incentive structures cannot be adapted to expand beyond bottom line financial performance.

• Disclose their performance against established ESG metrics, whether as a result of regulatory fiat, investor- and customer-driven market pressure, or activist and employee demands. As the SEC rule makes abundantly clear, we are headed to more ESG-related disclosure, not less.

• Invest in modern technology and training to establish and communicate expectations, measure performance, and disclose results.  These investments are a foundational part of bringing the first three steps to life. 

During the past 20 years, business software has repeatedly adapted to changing corporate focus. Enterprise resource planning changed how companies managed their financials and then customer relationship management systems stepped in to supercharge growth. Now modern governance software solutions must step up to play a critical role. Leaders and their teams need to be in a position to have real-time dashboards that track critical ESG metrics like emissions across their organizations. 

But technology alone is not enough. Informed leadership is critical. It is why at Diligent, we have launched, together with Glass Lewis and Kirkland & Ellis, a Climate Leadership Certification Program, a first-of-its kind initiative to empower leaders throughout organizations with the knowledge needed to make real-world ESG impact a reality. 

Bottom line, the SEC’s climate disclosure rule is a loud reminder that business leaders across the globe—regardless of the depth of the crisis of the moment—need to get down to the practical work of measuring impact across the full range of ESG issues. The long-term sustainability of their organizations requires it. 

Brian Stafford is CEO of Diligent Corporation.