Over the last several years, U.S. public companies have faced increasing pressure from investors and other stakeholders to disclose their environmental, social and governance (“ESG”) risks, practices and impacts. In the last few years, with more U.S. public companies publishing sustainability reports and other ESG disclosures, some investors have expressed concern that the lack of a standardized ESG disclosure framework, which makes it difficult for investors to meaningfully evaluate and compare companies’ ESG practices and risks, reduces the value of such disclosures.
Although a number of ESG disclosure standards have been developed and some have been incorporated into mandatory reporting regimes by non-U.S. regulators, any implementation by a U.S. company of an ESG disclosure framework remains voluntary at this time. Despite several proposals in 2019 from U.S. federal lawmakers on ESG disclosure requirements (which have not been adopted to date), the Securities and Exchange Commission’s (“SEC”) January 2020 proposed amendments to the MD&A rules did not include requirements for specific ESG or climate-related disclosures. SEC Chairman Jay Clayton and Commissioner Hester Peirce issued statements reaffirming the existing principles-based, materiality-focused approach the Commission adopted in its 2010 guidance, and highlighted threshold issues that pose challenges to imposing a standardized ESG disclosure regime, including the complex landscape surrounding ESG disclosures and the forward-looking nature of climate-related ESG disclosure. However, U.S. public companies are facing mounting pressure from investors—including influential institutional investors such as BlackRock, Vanguard and State Street, which have indicated in public statements in the past year that they are in support of companies making ESG disclosures aligned with both the Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosures (“TCFD”) frameworks—to voluntarily adopt certain ESG disclosure standards, especially the SASB and the TCFD frameworks, which have gained particular traction in the United States. In light of the increased investor attention and the lack of a mandatory framework, it is important for U.S. issuers to closely monitor developments in this area, and consider whether the voluntary adoption of an ESG disclosure standard makes sense in light of the issuer’s specific circumstances—e.g., the views of its investors, the costs and benefits of implementation and feasibility of establishing adequate internal controls over any such disclosure—before implementing any such framework.