James GordonIf the new Biden executive board delivers on its election promise, companies may be required in the coming years to disclose more information on carbon emissions, diversity and other types of sustainability indicators.
elected president
Joseph Biden
As part of the broader climate change agenda, it is intended to oblige companies to provide more detailed information on the environmental risks and greenhouse gas emissions of their activities and supply chains.
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For many years, American companies have had the opportunity to choose what they want to publish in their annual sustainability reports, which are often a glossy summary of the company’s socially responsible actions. Under SEC rules, public companies are only required to disclose information on ESG factors if they consider it essential for the investor’s perception of the company.
For years, investors have encouraged companies to obtain more non-financial data, but some companies have not come forward.
There is increasing pressure on public companies to disclose the risk of climate change, said Amy Borrus, Executive Director of the Board of Institutional Investors.
Mr Biden’s transition team did not respond immediately to requests for comments.
The number of companies reporting on their efforts towards sustainable development has increased over the last decade due to the increase in socially responsible investments. Last year, 90% of S&P 500 companies published sustainability reports, up from approximately 20% in 2011, according to ESG Institute Inc., a consulting firm.
What is at stake here, however, is what these companies find out. In the absence of applicable standards or regulations, companies can choose which measures they wish to disclose and which they wish to keep secret. This brings them into conflict with some investors who want to have a clear picture of the non-financial risks to which the company is exposed and the possibility to compare the ESG performance of the company across the industry.
Until we have a credible body and maybe regulations that tell us what to do, it will just be the Wild West of the moment when it comes to standards and reporting, said Louis Coppola, the executive vice president of the Institute for Management and Reporting.
The Securities and Exchange Commission, chaired by
Jay Clayton
has not developed new rules on the disclosure of ESG data, despite pressure from some supervisory directors to do so. Clayton, who is retiring this month, said earlier this year that a combination of environmental, social and governance analysis in disclosure would not benefit investors. In September, the regulator raised the bar for investors to submit proposals, most of which relate to ESG issues, to the Annual General Meetings for approval.
It is not clear how the Securities and Exchange Commission could approach this issue. Securities regulators may require companies to implement an existing reporting system, such as the Non-Profit Sustainability Accounting Standards Board, such as investors and advisors. Investors say they prefer the SASB benchmark because it is simple and the Board of Directors has actively advised the investor groups on the development of the rules.
It has taken a long time for financial reporting standards to reach their current level of maturity, said Marshall Chase, director of sustainability at Micron Technology Inc., a manufacturer of memory chips in Boise, Idaho. Standards for sustainable development do not yet exist and it would be good if they can hopefully be achieved in time, sooner or later.
It will take some time to prepare a proposal and receive feedback from industry, which means that at least until 2022 no standard is likely to be finalised as follows
Amy Lynch,
a former SEC accountant who currently chairs the consulting firm FrontLine Compliance LLC.
It will be an extra burden [for companies] and they probably won’t act voluntarily, but it will happen, Lynch said.
Expectations regarding SEC rules arose in the context of pressure to establish global reporting standards.
This autumn, the fund, which oversees international developers of accounting rules, proposed the creation of a new board to oversee sustainability reporting. These efforts, led by the International Accounting Standards Foundation, were supported by
BlackRock Inc..,
the largest asset manager in the world.
Lack of standardization makes it difficult to handle a particular standard, says Dewinder Ahuya, CFO of Atlanta-based aluminum manufacturer Novelis Inc..
Photo:
Luke Charrett of the Wall Street Journal.
The sooner we can move to an internationally recognized and accepted standard, the better we will think about lowering taxes on corporate returns, he said.
Michelle Edkins,
BlackRoca’s Managing Director for Investor Relations. In the meantime, countries can operate according to their own rules, as in the UK, where regulators said last month that they would require companies to report on the financial impact of climate change.
For some companies, the lack of rules for ESG reporting can be costly. Companies reserve the right to respond to a number of requests for sustainability reports and indicators from investors, rating companies and social groups, all of which have different interests. Moreover, the choice of GSS can mislead some managers.
The lack of standardization makes it difficult to adopt a certain standard, he said.
Dewinder Ahuya,
CFO of Atlanta-based aluminum manufacturer Novelis Inc. Biden’s administration will be much more active in this area.
Write to Christine Broughton at [email protected] and Marc Maurer at [email protected].
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James Gordon
