Why private companies need a plan for ESG reporting, assurance

A midnight rummage through your refrigerator won't result in the discovery of something manufactured by Southwire alongside your favorite brand of cheese, but that cheese might not smell so appetizing without Southwire.

"If you think about the wire that would be in an appliance, just behind your wall plug and then all the way to extra high voltage coming from a power plant and distributing energy into your neighborhood — that's Southwire," Christy Wright said.

Wright is senior vice president of corporate finance at Southwire, North America's largest wire and cable manufacturer. As overseer of a family-owned business, she is keeping a lookout for the release of the  SEC's first rules for climate-related disclosures sometime in 2023.

The SEC rules won't pertain to private companies per se, but in some ways, they might as well. And, as will be required of public companies, Southwire will seek assurance of its key sustainability disclosures from a licensed CPA.

"Go to a large home improvement store and walk down the electrical aisle. You're going to notice our products all over the place," said Wright, a member of AICPA & CIMA's Future of Finance Leadership Advisory Group. "And as things develop, they're going to be asking Southwire, 'For this product to go on the shelf in our store, we need to know its carbon footprint.' We're going to have to have the internal competency to be able to measure that."

Public and private companies alike can benefit from Corporate Decision-Making: Why Choose a CPA for Your ESG Assurance Needs?, a guide recently published by AICPA & CIMA, together as the Association of International Certified Professional Accountants, in partnership with the Center for Audit Quality.

In some cases, new regulations will mandate that public companies obtain assurance of environmental, social, and governance disclosures. But the guide explains that, regardless of pending regulations, public and private companies should be preparing for the possibility of having to report and obtain assurance of ESG data — and explains why obtaining assurance from a CPA makes sense.

"The SEC will have a certain set of compliance. Because of the way that we need capital and access to capital markets, we will have to be able to comply similarly," Wright said. "We will have to be a fast follower."

That being said, Southwire is a leader rather than a follower in the space, already having reasons — for the common good but also for the good of its bottom line — to report and assure ESG data.

"Sustainability continues to be a rallying cry, a high-profile objective for our company," Wright said.

In 2021, when Southwire was looking to establish a new line of credit, the company decided to incorporate its views on the significance of sustainability into its financial structure. The company asked banks if they would be interested in an arragement that tied pricing to the company's performance against greenhouse gas emission goals.

Wells Fargo, which has committed to $500 billion in sustainability financing between 2021 and 2030, was among the interested institutions.

"You may have heard of green bonds. Well, this is a green or sustainability-linked line of credit. We were among the first in the U.S. to have one," Wright said. "We have a goal to reduce our Scope 1 and 2 greenhouse gas emissions to net zero by 2025. We calculated our greenhouse gas emissions baseline in 2018, and now all the way through 2025, we have annual reduction targets based on the 2018 baseline.

"When we hit these goals, we get an economic incentive. If we do not meet these goals, we have an economic penalty."

How exactly does Southwire check its annual progress against its stated net zero goal? With a third-party process that in many ways mimics its annual financial reporting process.

"With the accounting profession, the rigor that people are taught around numbers, it just fits so well with these promises that we're making," Wright said. "I feel like it's a natural fit.

"That type of recordkeeping is important, and assurance in audit is important."

Source: www.journalofaccountancy.com