Maura Hodge is KPMG U.S.’ ESG Audit Leader and a panelist during MassBio’s 2023 State of Possible Conference on April 25, 2023. You can hear from Maura during the breakout panel “Where biotech is on ESG and how the industry can be bold going forward” where she will be joined by Demetra Barlas (Director of EHS and Business Resilience Lead; Pfizer), Naji Kasem (Director, Sustainability and Social Impact; Ultragenyx), and Brian Matt (Head, ESG Advisory; NYSE). Register today.
To me, “Being Bold. Looking Beyond.” means making strategic moves today that will allow you and your business to operate at the leading edge tomorrow. In my line of work, it’s becoming increasingly clear that engaging in and reporting on environmental, social and governance (ESG) initiatives is a critical component of this strategy. Employees are asking questions about environmental practices, and investors and proxy voting firms are incorporating climate and social considerations in decision-making. And the Commonwealth of Massachusetts, the U.S. Securities and Exchange Commission and several international standard setters and regulators are making big strides in formalizing how companies will disclose financial and nonfinancial information about ESG issues. It’s now a business imperative to prepare for what’s ahead or else risk falling behind — from both a competitive and a compliance perspective.
In conversations with life sciences and biotechnology companies — from early-stage to pre-IPO and beyond — I’m frequently asked by clients and other business leaders how to begin ESG reporting. After all, financial reporting is already highly complex, and requirements for ESG disclosures are not yet finalized. It’s challenging to prepare when you do not know exactly what you are preparing for. That’s where no-regrets moves come into play. These are concrete steps your company can take to prepare for widespread ESG reporting even without knowing the minutiae of what will be required. Here are a few to consider:
- Understand your current ESG maturity. A great first step to being able to report on ESG is taking stock of what your company is already doing. For example, what policies do you have in place for environmental responsibility, diversity, equity & inclusion (DEI), and cybersecurity? Do you have a team focused on ESG issues, and if so, how integrated is it into the broader organization? Have you assessed any climate-related risks to the business? For early-stage companies that are principally focused on research and development, these issues may not be top of mind quite yet. However, getting a handle on them now will save substantial time and resources when proxy voting firms, investment banks and employees start requesting details about how ESG is embedded in business strategy. ESG reporting is ultimately about telling your story, and thinking through these topics now will help you develop that narrative. Once you have a firm grasp of your current ESG maturity, consider conducting a materiality assessment to better inform target setting, tracking and, ultimately, reporting.
- Inventory your greenhouse gas emissions. Related to understanding internal ESG initiatives is taking stock of your current output, notably your Scope 1, 2 and 3 greenhouse gas emissions. Customers, suppliers and investors are already calling for this information. For early-stage and private companies, calculating initial inventories using invoice information and other procurement data may suffice. However, for pre-IPO or publicly listed companies with more complex supply chains and numerous external touchpoints, more sophisticated data will likely be expected. Gathering high-quality Scope 3 data is particularly tricky; however, as more companies begin reporting, data collection will become more easily accessible, allowing for more precise measurement.
- Assemble a cross-functional ESG task force. Staying abreast of the latest in ESG is a big undertaking, and the best task forces are the ones that include voices across the organization. At a small start-up, this responsibility may fall to a combination of legal and finance professionals, while larger companies may loop in investor relations, marketing, human resources, technology, research and development and other departments. Once your task force is assembled, it’s time to think through the agenda. Key topics may include:
- Supplier and customer contracts: Are third parties requesting disclosure of specific ESG information, such as DEI metrics, greenhouse gas emissions or labor policies?
- Global and local operations: Does the company face location-dependent climate risks? For example, is there a concentration of contract manufacturing organizations or contract research organizations in a particular region that has a higher probability of acute severe weather events? Are they at risk of longer-term issues like rising sea levels?
- Biodiversity and ethics: Are stakeholders requesting information about raw material sourcing, animal-related testing and other business practices that may impact local ecology?
- Prioritize ESG education. Sooner or later, we will all need to get smart on ESG. Investing in ESG education now is a no-regrets move for all levels, but especially for management- and board-level executives. The regulatory landscape is multifaceted and evolving, and it takes a conscious effort to keep up. For smaller reporting entities, you may think you have four to five years before compliance kicks in, but fast growth to accelerated filer status could mean that you will need to be up to speed on regulatory demands sooner than expected. It is also critical that financial statement disclosure committees receive comprehensive ESG training so that they will be best positioned to review and sign off on the Form 10-K when the time comes.
The life sciences industry is filled with trailblazers; each day, professionals push the limits of what’s possible in technology, medicine and patient care. This pioneering mentality will translate well as ESG reporting takes hold in Massachusetts, across the United States and internationally. And even though the details of ESG reporting are still being ironed out, it is in companies’ best interests to prepare. It’s central to building trust, it’s key to driving value, and it’s the bold thing to do.
For more no-regrets moves, I encourage you to check out this podcast from KPMG U.S.
About the Author
MAURA HODGE
Partner, KPMG
Maura is an audit partner in KPMG’s Boston Office. She has nearly 15 years of experience providing financial statement audit, audit of internal control, performance improvement advisory, and related assurance services to clients. In 2010, Maura supported the creation of KPMG’s Sustainability Services practice in the U.S. In that role, she developed the KPMG U.S. approach to sustainability assurance and has led the Firm’s largest ESG engagements, which include assurance of use of proceeds of green bonds, social impact of private equity funds, standalone greenhouse gas emissions reports, and full corporate responsibility reports. She currently leads the Firm’s national efforts around ESG measurement, reporting and assurance. Maura serves as KPMG’s liaison to the Sustainability Accounting Standards Board (SASB). She contributes to KPMG’s views with respect to SASB and the AICPA Sustainability Task Force and supports KPMG International member firms with ESG assurance of U.S. components. In addition, Maura is a leader in KPMG’s venture-capital backed company audit practice, working with life sciences and biotech portfolio companies of venture capital firms preparing for their initial public offerings. Through this role, she engages with VC partners, analysts and CEOs that are thinking about impact at the portfolio company level. Maura champions inclusion and diversity with a focus on retaining and elevating women in business. She actively mentors working mothers through KPMG’s Network of Women and regularly speaks at internal events about her experiences. In addition, she is a partner champion of Breaking 7%, a network of women in venture capital with the goal of elevating more women to the partner level at VC firms. As a licensed CPA, Maura is a member of the American Institute of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants (MSCPA). She was named a Boston Business Journal 40 Under 40 in 2017 and an MSCPA Woman to Watch.