How Media and Telecom Finance Leaders Are Powering Up For ESG Reporting
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As different sectors consider how they would implement the proposed rules from the U.S. Securities and Exchange Commission (SEC) on climate-related disclosures, media & telecommunications will be a particularly interesting case study. Unlike industries with tangible products — like retail, for example — media & telecom’s environmental impact can be more challenging to quantify when it comes from turning on a TV or mobile device, streaming digital content or even hosting live entertainment events.
The proposed disclosure rules have the potential to significantly raise the bar for how media & telecom companies identify, measure and disclose climate risks and opportunities to investors and the market more broadly. As the rules work their way through the approval process, finance leaders at media & telecom companies, many with operations around the globe, are thinking critically about what the proposal means for their businesses, both strategically and operationally. As the industry prepares for a new era of regulation, leaders tasked with reporting readiness and compliance should keep four considerations top of mind:
- Your data collection processes and controls are imperative.
Until now, companies have operated under vastly different reporting standards and frameworks, which the SEC — along with several national and international bodies — hopes to remedy. One of the primary objectives of the proposed rules is to give investors comprehensive and comparable ESG data, including climate-related data, to inform their decision-making. In evaluating whether your ESG data program is ready for the rigor and timeliness of financial reporting, consider these questions:
- How does my company collect data? Many media & telecom companies currently do not collect extensive ESG data, and in the cases where they do, collection methods vary greatly. While some companies manually input data from meter readings, utility invoices and other raw data sources, others have shifted to more sophisticated technologies to automate the process. For many media & telecom companies, a significant challenge will be standardizing data collection methods and doing so in a timeframe compatible with financial reporting.
- Who is responsible for data collection? While board oversight of ESG reporting is standard for most media & telecom companies, the day-to-day work of collecting data may fall to a range of groups. Some companies have established climate-specific teams, while others rely on general operations teams to gather data that the finance team ultimately synthesizes. A recent development we are seeing is the use of financial controller groups to implement controls that ensure data is collected and reported completely and accurately.
- How do foreign subsidiaries factor in? Most large media & telecom companies have multinational operations. This adds a layer of complexity since these subsidiaries may be subject to rules set forth by international bodies, such as the International Sustainability Standards Board (ISSB) or the European Financial Reporting Advisory Group (EFRAG). Pay close attention to developments in the U.S. and abroad to ensure data is usable in all relevant jurisdictions.
- If your Scope 3 emissions are material, they matter.
Perhaps the most widespread challenge for media & telecom companies at all stages of the ESG reporting journey is collecting and reconciling data on Scope 3 greenhouse gas (GHG) emissions, or emissions from upstream and downstream partners. In the SEC’s proposal, public issuers would be required to disclose Scope 3 emissions if they are material or part of stated emissions goals.
This presents two distinct challenges for media & telecom companies. First, aside from telecom network plants and facilities, the physical infrastructure of many media & telecom companies is sparse relative to other industries. Therefore, Scope 3 emissions will likely make up a significant percentage of overall GHG emissions. If they are material or part of emissions targets, this creates a logistical challenge to track down all the data necessary for reporting. And second, the process of tracking down that data may lead to the discovery of business partners in the supply chain that are less mature in measuring and curbing their emissions, resulting in a larger than expected increase in the overall reported carbon footprint. Beginning to calculate your Scope 3 emissions now will help avoid surprises later.
- Climate change can have a quantitative impact on your balance sheet.
According to the proposed rule, public companies would report the financial impact of climate events and transition activities on their consolidated financial statements if the aggregate impact is 1% or more of a given financial statement line item. The same rule would apply for related costs and expenditures if the aggregate impact meets a 1% threshold.
For telecom companies in particular, infrastructure can be highly vulnerable to weather events, which may become more severe and frequent with climate change. Finance leaders at these companies must be able to assess the financial impact — present and future — of climate-related risks on the balance sheet, profits and cash flows to be ready for new reporting obligations.
- It’s time to upskill your people in ESG.
In an effort to align ESG and financial reporting, the SEC has set an ambitious timeline for climate-related disclosures, one that few media & telecom companies are ready to meet. Of the companies that currently issue ESG reports, most do so several quarters into the next fiscal year. This is a far cry from the 60- to 90-day deadline imposed on Form 10-K filings.
To prepare for accelerated deadlines, media & telecom companies should prioritize scaling their ESG reporting capabilities. This may include hiring outside experts in the field. However, given that ESG reporting is relatively new, there is still a finite amount of expertise in the market. Training current employees now is a great way to mitigate this challenge down the road.
The bottom line
ESG reporting is a complex process, and no company is going to get it exactly right the first time. It will be an iterative process that will require flexibility and adaptability at all levels of the business. To help ease these growing pains, we believe media & telecom companies should begin preparing now, before final regulation is enacted. For those just beginning to develop ESG reporting processes, a good first step is conducting a reporting readiness assessment. It will uncover any processes, controls or reporting infrastructure needing updates or implementation before it’s too late. The demand for high-quality ESG data is not going away any time soon, and companies that prepare now will build trust with key stakeholders and gain a competitive edge.
This op-ed draws in part from an audit insight published by KPMG U.S.
Frank Albarella, Jr. is National Audit Leader, Media & Telecommunications at KPMG U.S. Maura Hodge is KPMG U.S.’ ESG Audit Leader.