A Path Towards Mandatory ESG Reporting Standards

U.S. SEC Seeks Public Comment on Proposed Mandatory Climate Change Disclosure

The U.S. government is finally getting serious about mandatory climate disclosure, and it's long overdue. In March, the U.S. Securities and Exchange Commission (SEC) initiated a public comment period for input and guidance on proposed climate disclosure rules. We support the President, Congress, and the SEC in their efforts to mandate ESG and climate disclosure.

According to a 2020 study by the Governance & Accountability Institute, more than 90% of S&P 500 companies are reporting on their ESG priorities and performance, a number that has increased rapidly over the past few years. More than ever, investors and business leaders are recognizing that ESG risk (especially climate risk) is financial risk.

Despite the abundance of ESG data in the public domain, the information is not always useful, consistent, or, in some cases, accurate. This is because there are numerous ESG frameworks, all of which are optional. Without unified ESG reporting standards, there is confusion, lack of comparability, and no real accountability for companies reporting on climate risk and other ESG metrics.

This needs to change. Like any information included in corporate financial disclosures, climate and ESG disclosures should be mandatory, standardized and auditable. With most companies already reporting on ESG risk to some extent, a new regulatory standard would only be burdensome to those companies that have not yet incorporated ESG risk into their strategic planning. For companies already reporting, having one standard will alleviate pressures to report across multiple frameworks, and enable them to focus on managing the ESG risks that are financially material to their business. Most importantly, an ESG reporting standard will help investors better understand the specific ESG risks of their portfolios.

We look forward to seeing more consistent and accurate ESG information in the market, and we support the SEC’s efforts to create unified climate change disclosure rules. To read our comments to the U.S. SEC, please click here.