Power to the People, Y’all! - A Company’s Stakeholders
Stakeholders are the literal context of a business, the atmosphere in which a company operates
Handed down from on high, the SEC’s recent climate reporting requirements are a big bummer. The regulator charged with “protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation” failed.
Affecting approximately 10,000 companies, the SEC now requires publicly traded companies to report direct emissions (known as Scope 1, like thermal onsite heating and vehicle emissions) and indirect emissions (anything purchased from a utility like electricity, steam and chilled water, known as Scope 2).
That’s a fraction of the story, though, and the big, hidden bulk of emissions are below the waterline in a company’s supply chain (Scope 3). For now, these will remain unreported, at least here in the United States at the federal level, though the State of California and the European Union require Scope 3 reporting.
One theory is that the SEC can fend off legislative and judicial challenges for Scopes 1 and 2 but not Scope 3. So the SEC didn’t require Scope 3 reporting, yet those emissions can equal as much as 70 percent of a company’s total emissions.
“If all companies report all their greenhouse gas emissions, the result is the information is out there.”
All is not lost, though, and one industry insider sees pushback from (at least) one group – investors.
If all companies report Scope 3, absent local regulation but because they are being asked by investors and banks, the result is (that information) is out there. - Emmanuel Faber
Emmanuel Faber is the chair of the ISSB (International Sustainability Standards Board), which develops a set of voluntary benchmarks for what’s material in corporate finance and ESG so investors can weigh those risk factors. Mr. Faber predicts that companies will report Scope 3 emissions simply because investors will demand it. (And yeah, he’s inside Fortress ESG.)
Beyond investors and owners, though, there are enormous groups of people ringing companies who can and are forcing business’s hands – the constellation of stakeholders. But who are the rest of these folks and why should they get a seat at the table?
In short, stakeholders are any person or group who can impact or is impacted by an organization’s achievement of its (business) objectives. They are the literal context of a business, the atmosphere in which a company operates. Stakeholders matter because they can provide thermal lift under a company’s wings or deliver a world of hurt that can shut a business down.
Copyright (2024) Big Glasses Consulting and Melissa Baldridge
Stakeholders play all sorts of roles - directors seeking to define strategy, to competitors facing the same issues, to workers with lists of nice-to-haves and must-haves, to policymakers crafting regulations, to global and local communities in which companies sit and interact. And the all-important customer who buys products and services and without whom a business is dead in the water.
Stakeholders can also have wildly diverse and divergent requirements – policymakers tightening the regulatory noose while investors and owners want them loosened, Gen Z workers demanding a four-day workweek while overseas competitors churn workers six days a week, and risk managers looking to keep mishaps under wraps while media split them wide-open. Not all stakeholders matter in every situation, and companies need to choose who to listen to or who to hear and yet dial down.
So who are a business’s stakeholders? You and me. The clients, workers, investors, competitors, community members and media consumers surrounding a business. Corporate history is littered with companies behaving badly, yet when confronted by stakeholders, underwent seismic changes or vanished altogether. Like Enron and Arthur Andersen busted for fraudulent accounting, Wells Fargo ginning up false sales and revenue, Amazon shown the door in Long Island City and fast-fashion company Boohoo exposed for de facto slavery in its British factories.
There’s a growing mountain of evidence showing that stakeholders care deeply about a getting a complete picture of greenhouse gas emissions and ESG in general, and they support aligned companies with dollars. I’m developing a book on the topic and will inform all posts with that data and evidence.
If we gather together and demand actions like a business’s accounting for its greenhouse gas emissions, that collective action can rock a business and create change. Power to the people, y’all.
We are not legal, accounting or investment professionals, and we are not offering that type of advice here. While we hope our thought leadership ignites exciting, transformative avenues for your business, please consult with licensed, certified professionals to discuss your particular situation.