Private market feels ESG pressure

Private companies should consider ESG as a value driver and opportunity for competitive advantage.

In brief

• ESG reporting is accelerating corporate sustainability efforts for public companies.
• Private companies can follow the lead of public companies and make managing climate risk a top priority.
• Although not currently required, addressing market changes, setting transparent goals and tracking progress on sustainability matters is critical for private companies.

Environmental, social and governance (ESG) initiatives already play a substantial role in shaping business strategy and decision-making in the private market. Now, the U.S. Securities and Exchange Commission (SEC) is proposing rule changes that would create a formal structure for how companies disclose climate-related risks and activities.  While this move is currently directed at publicly traded companies, it also could be meaningful to private companies that have made managing climate risk a top priority.

“It may surprise some that we were paying just as much attention to the [SEC] announcement as anybody because it shifts the market, no matter what,” said Maury Wolfe, VP, Corporate Responsibility and Social Impact at Cox Enterprises, a privately held company. “It shifts the focus to ESG, and we must change along with it.”

Wolfe was one of three panelists in the latest edition of the EY US Think ESG webcast series, “How ESG reporting is accelerating corporate sustainability efforts,” which took place in late March. The action taken a day earlier by the SEC would require public companies to assess and disclose the material impact of climate-related risks on their businesses.

While Wolfe added that Cox is not required to comply with SEC requirements as a private company, it is important to Cox that the company addresses changes in the market, continues to set transparent goals and shares overall progress on its sustainability journey, as that provides accountability and leadership with external stakeholders.

“Whether it’s potential new customers, supply chain partners, employees or new recruits we want to bring in, in this race for talent, they are expecting us to share and be transparent in the same way that others are,” Wolfe said during the webcast. “They are not so concerned whether we are private or public or if we have a 10-K or not. So, there is definitely pressure.”

Private companies see the big picture

As a family-owned company that centers its values around sustainability and community, Cox feels a responsibility to integrate ESG into overall business operations.

And the ESG movement has become a business priority across all industries. The 2022 edition of the EY US CEO Survey, which included a mix of public and private leaders, found that:¹

• Eighty-two percent of US chief executives see ESG as a value driver to their businesses over the next few years, and virtually all have developed a sustainability strategy.
• Seventy-three percent of US respondents say they have adopted ESG for strategic reasons —such as competitive advantage and lower cost of capital — rather than pressure from regulators.

ESG is not a race to be won, but rather an opportunity for companies to share their journeys. “For a private company like Cox, it’s a chance to invest in innovation, develop new partnerships and explore investment opportunities that can support sustainable outcomes,” Wolfe said. She added that one of the company’s aspirations is to have a business division dedicated to clean technology, something that could help define Cox’s ESG narrative. 

Pursue cross-functional strategies, opportunities

As public companies ramp up their efforts to comply with the new SEC guidelines, private businesses can use ESG as a lens for strategic decision-making. Playing in different spaces― whether it’s a traditional business segment or something new― could unlock new business opportunities. Putting sustainability at the center of how value is created generates long-term value for all stakeholders. Doing good for people and the planet is good business, and it’s becoming the expectation. Private boards have market momentum on their side to initiate discussions, if they haven’t already, on how to identify and maximize ESG-related growth opportunities within their businesses and their industries.

The views expressed above are not necessarily those of Ernst & Young LLP or other members of the global EY organization. The information is for educational purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice. Please refer to your advisors for specific advice.