Critics call efforts to promote environmental, social and governance (ESG) best practices a campaign in left-wing “virtue signaling” aimed at imposing “woke capitalism” on U.S. companies.

To some CFOs, however, the biggest downside of embracing ESG may simply be the cost.

The Securities and Exchange Commissions (SEC) estimates that a large company will annually need to spend an extra $530,000 to comply with its proposed rule requiring detailed disclosures on climate risk. The projection is probably too low, attorneys and former regulators said.

“Most people feel that’s significantly underestimating the amount of money for companies to comply with these rules,” according to David Brown, a partner at Alston & Bird.

Under the regulation, CFOs would need to describe on Form 10-K their strategy toward climate risk, including plans to achieve any targets they have set for curbing such risk.

Companies would also need to disclose data on their greenhouse gas (GHG) emissions, either from their facilities or through their energy purchases, and obtain independent attestation of their data.

CFOs will probably face higher costs if they delay pulling together the staff, technology and processes needed for compliance, the attorneys and former regulators said.

As companies rush to fall in line with the final rule — which the SEC will probably release before January — compliance costs will rise due to increasing demand for accountants, data analysts and consultants with ESG expertise, they said.

“There’s not enough accountants and other people out there with the wherewithal” to help ensure compliance, Brown said in an interview.

Rather than wait for the SEC to release the final rule, CFOs should seize the initiative by taking seven steps to prepare for climate risk disclosure, the attorneys and former regulators said. CFOs should:

1. Create an ESG steering committee

A CFO should press for the launch of a steering committee made up of representatives from across the company, the attorneys and former regulators said. Such a group can prove especially adept in identifying vulnerabilities and needed changes.

“Make sure that you as CFO have put together a steering committee of cross-functional experts inside your company to deal with climate change,” said Elizabeth Saunders, a partner at Clermont Partners. The panel on a weekly or biweekly basis can discuss data collection and benchmark the steps to disclosure.

“Ensuring that everyone is marching to the same tune is one of the biggest challenges,” Brown said. Compliance will involve myriad parts of a company, from risk management and real estate to supply chain management and the general counsel’s office.

2. Ensure adequate board oversight

Proxy advisory services such as Glass Lewis and Institutional Shareholder Services track the activities of board committees that supervise ESG programs, including risk analysis, Brown said. “There’s expectations for board oversight and risk management, so you don’t want your board cut off.”

A board closely tracking climate risk disclosure will buffer a CFO and others in the C-suite against criticism, Saunders said in an interview. “The best way to have a conversation with an institution that’s frustrated that you don’t have the right data out there is to describe oversight by the board.”

3. Consider hiring specialists

A fresh set of complex SEC regulations often prompts disagreement over interpretation and speculation on the intensity of enforcement, according to Kai Liekefett, a partner and co-chair of the shareholder activism practice at Sidley Austin. “When you have a new set of rules you’ve entered uncharted territory for some time, and you’re left guessing and interpreting how to apply the new rules.”

A CFO whose company lacks SEC expertise should consider hiring someone with a full understanding of corporate governance and the agency’s plans for climate risk disclosure, Liekefett said in an interview. “You need someone deeply versed in the rules.”

4. Lead the investor conversation

The SEC’s climate risk disclosure rule “is going to be an opportunity for activist hedge funds to dial up shareholder campaigns and embarrass companies,” Liekefett said. “This is bad news.”

A CFO can head off any hostile activism spurred by the SEC rule by steadily communicating with the most outspoken investor groups, along with the company’s largest shareholders, according to Nell Minow, vice chair at ValueEdge Advisors, which advises institutional investors on corporate governance.

Adoption of the climate risk disclosure rule will probably evolve like Section 404 of the Sarbanes-Oxley Act of 2002, which mandated that publicly-traded companies create, document and test internal controls for financial reporting, Minow said. Regularly updating investors on progress toward compliance is essential, she said.

“I would work very closely with the investor relations office and corporate secretary to make sure they are managing shareholder expectations,” Minow said in an interview. “You want to reach out in a proactive way.”

5. Double-check data integrity

In order to comply with the SEC rules, a company will need to measure its so-called Scope 1, in-house GHG emissions as well as Scope 2 emissions by its energy providers.

“What you’ve got to do this year is get a blueprint with your operational people for how you will collect Scope 1 and Scope 2 data,” Saunders said, adding that the SEC is unlikely to change requirements for such disclosure.

The task and the stakes are big, Liekefett said. “It’s a huge challenge, and it’s complicated by the fact that everybody expects the SEC to be all over it — they want to send a message to corporate America.”

A company will also need to report Scope 3 emissions by its suppliers and vendors across its supply chain if it considers such data material to investors and has committed to doing so, SEC Chair Gary Gensler said in testimony to the Senate Banking Committee on Sept. 15. “We have to ensure that the public companies that are saying this or that about Scope 3 aren't, frankly, misleading the public,” he said.

Requiring a company to gauge Scope 3 emissions across its entire supply chain will be especially challenging, according to critics of the SEC’s rule.

“It is truly beyond unreasonable,” Sen. Steve Daines, a Montana Republican on the banking committee, told Gensler during the hearing. “Do you really think it’s reasonable to ask companies to collect, analyze, reconcile and report on things such as whether a company car used by an employee is a Tesla or pickup?” Daines asked Gensler.

6. Set aside funding before a recession

As forecasts of a downturn increase, CFOs should act before the need for belt-tightening, and budget for the technology, processes and hiring that undergird climate risk disclosure, including ESG experts and carbon emissions measurement systems, Brown said.

“If we’re going into a recession, you don’t want to be the one trying to set up an ESG program” during a company-wide push for austerity, he said. “Make sure to operationalize the SEC requirements to keep costs down rather than have to ramp up at the last minute.”

7. Align GHG measurement with cost-cutting

CFOs should approach climate risk measurement as an opportunity to better understand their businesses and find opportunities to boost efficiency and savings, according to Anheuser-Busch InBev CFO Fernando Tennenbaum.

When measuring carbon emissions and climate risk, “I feel like I need to make sure that it makes business sense, and that it’s a place where the business can make a difference,” he said in an interview.

For example, AB InBev has made progress in measuring Scope 3 emissions by its suppliers — especially farmers of barley, corn and other grains — by working with them to identify ways to streamline production, he said.

“The most important thing to do is to make sure that whatever you do is material to your business,” Tennenbaum said. “Hopefully, sooner rather than later, we’ll come to a point where reporting ESG is as straightforward as reporting net income.”