Environment, Social and Governance (ESG) Disclosure Policy: What is it and why should you care?

Madeline Wade

Madeline Wade, Vice President of Advocacy & Co-Chair of Signal Outdoors, discusses three things every company should know about climate disclosure policy and what to do to prepare for increased ESG-related activity.

ESG, which stands for Environmental, Social and Governance, seems to be everywhere you look these days. It’s the process of disclosing a company’s sustainability and ethical practices to better understand a company’s long-term financial performance. This includes everything from disclosing a company’s path to net zero emissions to political spending through third-party organizations.
Investors have increasingly focused on companies’ environmental, social and governance risks as a way to better understand corporate risks and opportunities. As a result, more and more companies are disclosing emissions-related information through a variety of reporting frameworks.
Recently, the Biden Administration took a historic step towards mandating climate disclosures. The White House issued a sweeping executive order last month directing federal agencies to assess climate-related financial risk across the federal government, U.S. financial sector, and publicly-traded companies. The White House has framed this order as first step towards requiring companies to disclose information about their emissions. SEC Chairman Gary Gensler has said that he intends to propose new rules on climate disclosures by October of this year. This has sparked much greater policy attention by Congress and Administration around disclosures.
Three things every company should know about climate disclosure policy debate:

  • Congress is increasingly considering ESG-related legislation. This week the House of Representatives will vote on the ESG Disclosure Simplification Act (HR 1187) that would require publicly traded companies to disclose ESG-related information. In addition to this legislation, House and Senate committees of jurisdiction have held multiple hearings on the issue.
  • Companies and activist groups are actively engaged. The SEC solicited public feedback on climate disclosure policies. Specifically, the SEC is seeking input on whether companies should have to disclose climate risks and whether existing disclosure frameworks provide consistent and reliable information to inform investors. The RFI closed last Friday and received over 5,000 public comments.
  • International rules are tightening: Ahead of the G7 summit, finance leaders from the seven countries endorsed policies that would mandate publicly traded companies disclose climate-risks. They also pledged to coordinate on frameworks, specifically that companies should follow recommendations under the Task Force on Climate-related Financial Disclosures (TCFD).

Three things every company should do to prepare for increased ESG-related activity:

  • Prepare for consumer and activist inquiries about your ESG-related disclosures. Even in the absence of mandatory disclosures, there is a growing demand for companies to act in these areas. Similar to the grassroots movement around corporate climate commitments, expect to see public pushback to companies who resist ESG disclosures.
  • Expect increased congressional interest in your disclosures. As staff and elected officials in DC become increasingly well-versed on ESG-related disclosures, expect there to be more scrutiny of existing disclosures, such as sustainability reports. This will be evident in congressional inquiries and oversight hearings.
  • Follow updates coming out of the Treasury. President Biden’s Executive Order on Climate-Related Financial Risk is sweeping in its review of the federal government’s practices as well as how agencies incorporate climate disclosures into the industries they regulate. There will be rolling updates throughout the year, including a report expected in October that will issue recommendations on whether to mandate climate disclosures.

While the focus is currently on publicly-traded companies because those are easiest to regulate, there could be moves to expand as interest grows.

Madeline Wade leads Signal Group’s efforts to guide corporations and organizations around climate change, including the development of ESG disclosures, carbon reduction initiatives, and policy related to climate change.

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