Preparing for IPO: An ESG Roadmap for Chief Legal Officers

Your company’s headed for an IPO in 18-24 months. You have been focused on growth and financial performance to meet this goal. But as it comes closer, you know that you need to start preparing for scrutiny on your environmental, social, and governance performance.  

The thought of tackling ESG feels overwhelming. You have no internal expertise on the subject and no bandwidth. You don’t know where to start. And the rest of the executive team is focused on other areas.

I have heard this story from three Chief Legal Officers in the last month. 

As the Chief Legal Officer, you can help your company become ESG-ready for an IPO. But you need to act now. ESG will come up in due diligence 3-6 months before IPO. There is mounting evidence of the connection between ESG communications and IPO pricing and valuation. And it takes time to get good ESG practices in place. 

So, what should you do? Use this framework for your IPO preparation on ESG:

(1) Conduct a gap assessment against basic ESG requirements.

Some aspects of ESG are an expectation of all companies – primarily policies and practices related to ethics and labor and employment. Identify and close any gaps in these areas and complete a forward-looking regulatory review. 

Also, be sure to consider climate. Climate reporting is becoming a common client and investor expectation, and it is being incorporated into regulatory schemes. Engaging a vendor to measure your carbon emissions is a smart move.  

(2) Identify ESG issues that are critical to your business.

To meet investor expectations, you will need to go beyond basic requirements. Identify and prioritize the ESG issues that are specific to your industry and business strategy. Here are some examples:

• Technology: If you are in the tech industry, talent is everything. Diversity, equity, and inclusion practices that help you recruit and retain talent are likely critical to your business. Also, you will need to look at your data storage for cyber safety, geopolitical security, and carbon efficiency. 

• Manufacturing: In manufacturing, your supply chain will be front and center. Where are your raw materials coming from? Do you have traceability? Are there environmental or human rights issues related to their procurement? You may need to collect ESG data from your suppliers.

• Consumer Goods: Consumers are proactively monitoring the environmental and social performance of certain types of goods. Missteps can lead to boycotts and brand damage. Examples include labor practices in fashion, human rights in chocolate, and ocean pollution in single-use plastics. 

Your board and executive team must be aware of hot-button ESG topics related to your business and have a plan to address these areas.

(3) Conduct a materiality assessment.

A materiality assessment is a tool that is used to collect stakeholder input on key ESG topics. It typically involves a survey of clients and employees and interviews with key stakeholders such as executives, board members, and investors. This tool can help you identify the ESG issues that are of strategic importance to your business. Having a materiality assessment will also help your performance in ESG ratings and enhance the qualitative narrative of your ESG disclosures.

(4) Build a strategy and metrics.

Once you have identified the ESG issues that are critical to your business, it’s time to build a strategy to address them. Your strategy for ESG should not be siloed. To be credible, you must build it into your overall business purpose and objectives. This sets you up to integrate ESG throughout your operations. 

Include goals and success metrics in your strategy-building exercise. Your success metrics will be critical to driving, measuring, and reporting on progress.  

(5) Establish governance

Governance over ESG is needed both to ensure that ESG objectives are met and to demonstrate that your company is appropriately managing risks and opportunities. There are three cornerstones of ESG governance:

• Board Level – Document how ESG oversight is allocated on your board. In some companies ESG issues are managed by the full board and in others the area is delegated to one or more committees. 

• Executive Level – Assign responsibility for ESG objectives to a single executive. You need an executive to drive action, and you will be expected to identify a top leader with this responsibility.

• Company Level – Establish a cross-functional leadership team to support the responsible executive in the execution of your ESG strategy. Operationalization of ESG requires a whole-company effort.

(6) Demonstrate impact.

Leveraging your governance model, implement actions that drive progress against your goals and demonstrate the impact of your actions using your success metrics. You may also consider reporting your activities in a company-issued report and through third-party frameworks such as the Global Reporting Initiative (GRI), the Carbon Disclosure Project (CDP), or the UN Global Compact.

Following this framework will position your company to make ESG performance a positive part of its IPO valuation and provide a launch pad for ESG reporting as a public company.

Once you map out these steps, you will feel more confident and in control. And your team will thank you when they can successfully address ESG questions in the run-up to your IPO.   
  

Whenever you’re ready, here is how I can help you:

1. ESG Launch Program: I help make ESG easy for in-house counsel by providing tools, training, and support throughout a 12-month program focused on launching or up-leveling your ESG program.

2. Workshops and Training: I create company-wide understanding, alignment, and buy-in on ESG goals and objectives through customized board, executive, and cross-functional training.  

3. Advisor Services: Leadership: I provide hands-on support for driving ESG programs by serving as a strategic advisor.

Reach out to schedule a strategy session by sending an email to christine@christineuri.com or booking an appointment directly on my website.