Insight by KPMG

ESG isn’t just an investment for federal agencies; it’s an opportunity

This content is sponsored by KPMG.

The Postal Service recently doubled its order of electric vehicles; four bipartisan senators have introduced a bill instructing agencies to develop strategic plans to manage and recycle electric vehicle batteries; and the Thrift Savings Plan will soon introduce environmental, social and governance (ESG) funds to the federal employee retirement plan, all in the year since President Biden released the Executive Order on Climate-Related Financial Risk. In fact, President Biden...

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This content is sponsored by KPMG.

The Postal Service recently doubled its order of electric vehicles; four bipartisan senators have introduced a bill instructing agencies to develop strategic plans to manage and recycle electric vehicle batteries; and the Thrift Savings Plan will soon introduce environmental, social and governance (ESG) funds to the federal employee retirement plan, all in the year since President Biden released the Executive Order on Climate-Related Financial Risk. In fact, President Biden has issued nearly 30 Executive Orders related to ESG topics.

Federal agencies are embracing concrete steps towards ESG. With a spending of approximately $3 trillion per year across the largest federal agencies, the federal government is larger than the world’s biggest publicly listed companies. Additionally, the government is the largest employer in the United States. The government should lead the way for a more sustainable future to be achieved.

“ESG is not just simply a challenge to navigate, but it represents an opportunity to unlock value, and to help transform the government’s operations and even its mission,” said Corinne Dougherty, KPMG IMPACT audit partner. “There is an upfront cost, but in the long term, the government can save resources that can then be spent on other mission critical needs.”

For example, Dougherty said, the Defense Department recently came out with its own climate strategy. One thing it included is the goal for tactical vehicles to be fully electric by 2050, in support of the President’s goal of net-zero emissions across for the United States by 2050. But that will not just reduce costs for the DoD by reducing its reliance on fossil fuels; it will impact DoD’s mission. Currently, fuel supply chains in combat areas are crucial, and require protection by soldiers. But if everything is fully electric and runs on battery power, that eliminates the need for supply runs by fuel convoys. That reduces the need to put those soldiers in harm’s way, and they can then be reassigned from convoy protection duty to other mission critical tasks.

“Every agency has a different mission based on their ‘industry’ and their operations,” Dougherty said. “So they should really be thinking through how having a robust ESG strategy help not just reduce costs, but how can it help their mission, which ultimately can benefit citizens, as well as the agencies’ workforces.”

Right now, around 20 agencies have come out with specific plans for how to adapt to climate change, and those agencies have begun putting those plans to work. But there’s a crucial step that has to happen in between: The government has to figure out what metrics it’s going to use to track these efforts, and how it’s going to report them. For example, Dougherty said a recent White House fact sheet mentioned an interagency working group is currently identifying and deploying tools and data systems to measure, monitor and report and verify carbon dioxide, methane and other greenhouse gas emissions.

Dougherty also said that in addition to monitoring and measuring, disclosure and reporting will be critical for meeting the goals laid out in the executive order. Moreover, obtaining assurance of this reporting is crucial to enhancing public confidence, accountability, and trust in meeting the United States net zero target, as what gets measured gets managed.

“It really comes down to what’s the data that they’re using? What are the ways of aggregating the data?” she said. “DoD has operations all over the world; how are they going to accumulate, for example, greenhouse gas emissions and then ultimately report it? Is the data complete and accurate? Ultimately, the government is going to need to track their greenhouse gas emissions in order to determine if the changes that they’ve made to reduce greenhouse gas emissions are actually in place and working. The data will have to be complete, accurate and reliable for the government to be able to make informed decisions. Having high quality reporting and controls around the data will really be important for the government to make decisions going forward.”

In other words, there needs to be a whole of government standardization of metrics. One way to go about that, Dougherty said, is to borrow lessons-learned from agency’s Chief Financial Officers. Because the CFO’s office already has very similar processes and controls around its financial statements.

Once those measures are in place, Dougherty said federal agencies will be able to realize the opportunities in another area: their workforces. As a new generation enters the workforce, they want to work for organizations aligned with their own values, she said. And while federal agencies have recently been making diversity, equity, inclusion and accessibility a priority, people are largely waiting to see what the results of that commitment will be.

Following through on that commitment to diversity, equity and inclusion is an opportunity for federal agencies to elevate workforce diversity, which will help them enable skillsets needed for the future.

“ESG really does have an impact on government and government has an impact on the broader economy and the citizens,” Dougherty said. “This is not just a topic for the private sector. When you think of the size and the scale of the federal government, the government should lead by example.”