SEC focuses on ESG disclosure

The Biden administration brought many changes to government, not the least of which is a determined focus on sustainability. That focus is evident at the SEC, where Acting Chair Allison Herren Lee is using her time as head of the agency to promote increased disclosure on topics across the ESG spectrum. In a recent speech, Ms. Herren Lee stated that “no single issue has been more pressing for me than ensuring that the SEC is fully engaged in confronting the risks and opportunities that climate and ESG pose for investors, our financial system, and our economy.” Gary Gensler, Biden’s nominee for SEC Chairman, apparently has similar priorities.

Right now, ESG disclosure is generally subject only to the general concept of “materiality.” In other words, disclosure is required with respect to information a reasonable investor would consider material. Companies have largely been free to determine what topics to address, the format for disclosing information, and the amount of detail to provide. The result has been disclosure in a variety of vehicles (such as websites, CSR reports, and dedicated sections in proxies and annual reports) utilizing an assortment of reporting frameworks—or no framework at all. Many are unhappy with this arrangement. Companies that want to be transparent are responding to inconsistent information demands, and investors don’t have a convenient way to compare issuers. That could be about to change.

Let’s consider the recent landscape.

It seems clear that the SEC will issue either a mandate or guidance (or both) aimed at standardizing disclosure on at least a few topics—with climate, diversity, and political spending at the top of the list. Companies that don’t currently report on these issues should prepare now. That means:

  • identifying the data that would be most material to the company and useful to the market,
  • selecting appropriate metrics and setting goals,
  • ensuring you have a good system for collecting information throughout your supply chain,
  • choosing a reporting framework and format for your disclosure, and
  • monitoring emerging issues.
By |2021-04-15T14:06:56-04:00April 14th, 2021|Categories: Articles|Tags: , , |Comments Off on SEC focuses on ESG disclosure
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