As Environmental, Social and Governance topics continue to attract shareholder interest – 95 social and 20 environmental proposals to date in this proxy season – a few companies are crossing the Rubicon in starting to include ESG information in their formal SEC filings.
The demand for ESG information reflects the ongoing shift in investor’s focus from how a company creates value short-term for shareholders to a more long-term view of how it understands and responds to the needs of all stakeholders. Companies are increasingly expected to show how they identify, measure and act toward intangible assets such as culture, people, governance and innovation.
As the demand grows for greater transparency, companies have used various vehicles to communicate their ESG initiatives, including annual reports, corporate websites and dedicated sustainability reports. For the most part, those communications have avoided trying to comply with formal standards such as GRI or SASB used for SEC filings, for a number of reasons, including concern about whether companies’ ESG information was sufficiently rigorous, reporting cycle time pressures and potential liability exposure.
Recently, though, two companies have taken the first step toward including ESG information in their regulated disclosures.
The first, Vornado, a $13 billion REIT, attached a press release and copy of its 2018 ESG report to a Form 8-K submission in April. The 8-K format allowed Vornado to make its filing outside the periodic financial reporting cycle. The report, which included a detailed and thorough SASB report, was also made under a SEC rule designed to allow companies to “furnish” rather than “file” information.
The second, by online specialty goods marketplace Etsy Corporation included its thorough SASB report in its 10-K filing. Its outside auditor, PwC, provided a review report on specified sections of the disclosures, performing attest procedures on the company’s carbon and energy metrics. Readers were then referred to its investor relations website.
The two filings are another step in responding to investor demands for more ESG information that is reliable, comparable and financially material and meets standards equivalent to the accuracy and controls for traditional financial information.
Coming later this summer: an update on ESG disclosures in proxy statements.