June 30, 2021

ESG: Enhancing Your Disclosure Controls & Procedures

Many companies are trying to satisfy investor demands for ESG disclosure, but it’s probably fair to say that their disclosure controls and procedures (DCPs) for these voluntary disclosures are likely not as robust as those required to be in place for mandatory disclosure topics. If you work with a company that meets this description, then be sure to take a look at this memo from Skadden & the Society for Corporate Governance, which provides some thoughts on both how to enhance disclosure controls for ESG and why companies should consider making such an effort now.

The memo highlights some of the risk mitigation benefits of enhancing DCPs in this area, and this excerpt addresses some of the other benefits that companies may derive:

The motivation for enhancing E&S DCP is not limited to risk mitigation. As companies factor E&S matters into their strategic decision-making and business operations, there may be business and operational benefits to ensuring robust DCP with respect to voluntary E&S disclosures that support the reliable collection and tracking of data. These benefits may include, for example:

– Enhancing the accuracy and reliability of the data used by management and the board of directors in their decision-making and oversight, respectively.
– Promoting, among employees across the enterprise, a greater understanding of, and engagement in, the company’s E&S efforts and objectives.
– Facilitating consistency of E&S disclosures across multiple mediums, such as the corporate website, sustainability report, and employee communications.
– Improving tracking and benchmarking of progress with respect to E&S initiatives and commitments over time.
– Uncovering risks and opportunities by better identifying areas that would otherwise be overlooked absent reliable data.
– Increasing access to capital or lowering the cost of capital.

The memo provides detailed guidance on enhancing ESG DCPs.  It also points out that another benefit of these efforts will be to help position the company with its obligations to establish DCPs addressing ESG disclosures in the highly likely event that the SEC adopts rules mandating some form of these disclosures.

John Jenkins