TheCorporateCounsel.net

Here’s something our colleague Lawrence Heim blogged last week on PracticalESG.com:

I’ve advocated for replacing outdated “sustainability” lingo with the more up-to-date (and perhaps better-marketed) term “ESG.” But according to this recent survey from the US Chamber of Commerce, NSADAQ, the Silicon Valley Leadership Group and other trade organizations, the initialism may be picking up some baggage of its own.

The survey – reflecting responses from 436 CEOs, CFOs, GCs, corporate secretaries, IR and sustainability folks at companies across industries and market caps – is aimed at influencing the SEC’s potential ESG disclosure proposals. Only 8% of the respondents feel that “ESG” encompasses a generally understood set of issues that can be easily defined by regulators. 61% said it’s a subjective term that means different things to different companies and can’t be easily defined by regulators.

Here are some of the other findings:

– 59% of the respondents have increased the amount of climate disclosure they provide since 2010, with half of those doing so in their Risk Factors disclosure (Item 105 of Regulation S-K).

– Half of the respondents think standard ESG disclosure frameworks are confusing and address immaterial information – but they use them anyway: 44% use SASB, 31% use GRI and 29% use TCFD. Surprisingly, 41% of respondents do not rely on any standard-setting body in developing their ESG disclosures for SEC or other communications.

– There is overwhelming agreement (95%) that shareholders are the intended audience of ESG disclosure. Other audiences receiving more than 80% of votes are employees, customers and ESG standards/ratings bodies.

– Despite effort put into the disclosures, one-third of the respondents “seldom” hear feedback from shareholders, with only 41% indicating they “sometimes” hear from shareholders.

– 63% communicate to shareholders about climate change.

– 89% support tailoring ESG disclosures for smaller and/or newly public companies.

– 24% of companies would support CEO/CFO certifications of climate change disclosures, with 22% supporting a requirement for third-party assurance. 47% oppose executive certifications and 57% oppose assurance. A mere 28% of respondents currently engage third parties for assurance or audits of their ESG disclosures.

What This Means

Regulators may take the report findings as weighing in favor of principles-based disclosure, which could simplify the SEC’s rulemaking effort. The downside of principles-based disclosure is that it may not provide the comparability that investors are looking for. And if it doesn’t, then companies might still find themselves wading through mountains of surveys and conflicting disclosure requests.

ESG and sustainability professionals should thoughtfully consider what I believe is a most important message: even though “ESG” has the attention of executives and management at the moment, that may be tenuous. Without a regulatory mandate, executives may question the value of costs/efforts that are voluntary, fractious, inconsistent, do not lend themselves to comparability with peers, and which result in limited feedback from intended recipients. Where ESG initiatives are clear and direct operational or strategic business imperatives, executives will support them as such.

– Liz Dunshee