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Sustainability Reporting Gains Momentum

    Client Alerts
  • July 12, 2016

A couple of years ago I suggested that companies should consider adding new, or enhancing their existing, sustainability disclosures. (See this Doug’s Note.) The trend toward sustainability (frequently known as “ESG” for environmental, social and governance) disclosure was picking up steam at that time, and has mushroomed since then. A recent speech by SEC Chair Mary Jo White at the International Corporate Governance Network Annual Conference in San Francisco highlights that reality, underscores its importance and hints at where the SEC is headed with this issue.

Chair White begins by noting the breadth of topics encompassed by “sustainability,” including climate control, resource scarcity, corporate social responsibility and what she calls “good corporate citizenship.” To the extent that they may materially impact a company’s risk profile or trends and uncertainties, for example, such disclosures would be required under current rules. To the extent they are not technically required by existing rules, they may still be advisable due to emerging disclosure standards within a company’s industry or peer group.

Chair White cites reports stating that in 2015 75% of S&P 500 companies and more than 90% of the world’s 250 largest companies published a sustainability or corporate responsibility report. She notes also that various organizations have developed guidelines for sustainability disclosures. (See this Doug’s Note, for example.) Yet, she notes that the push continues for even more reporting, including “integrated reporting” of financial and sustainability information.

Nevertheless, the SEC appears to continue its wait-and-see attitude. Chair White acknowledges that sustainability reporting remains governed by the old materiality standards, limited recent guidance on certain issues (such as climate change), general concepts of shareholder engagement and more focused disclosure reviews by the SEC staff. She points out, however, that the recent Regulation S-K Concept Release solicits input regarding the need for specific disclosure requirements on certain sustainability issues (see this Featured Article) and says that sustainability reporting “has our attention.”

In summary, sustainability reporting continues to gain momentum. Among larger companies, it is now commonplace, though the nature and scope of reporting varies. Even more so now, companies should consider the following potential benefits of sustainability reporting:

  • Better internal focus on sustainability-related risk assessment and strategy
  • Enhanced reputation among stakeholders (including activist investors) due to disclosure transparency
  • Improved employee morale and loyalty due to environmental emphasis
  • Reduced environmental footprint from closer attention to sustainability issues
  • Increased operating efficiencies through identification of operational improvements
  • Competitive advantage over peers
  • Better overall enterprise risk management