Kilian Moote
Managing Director, Corporate Governance, Georgeson
Diverging perspectives on environmental, social and governance (ESG) continue to emerge and evolve as it remains an active topic for executives and investors. Regulators at the municipal and federal level around the world t are evaluating the extent to which corporations should be required to report in their jurisdictions. The context and perspective on ESG have changed significantly over the past decade as efforts to quantify and report on broader societal impacts and climate risk have increased. Recently, opponents to increased reporting and ESG programming have started pushing back.
This has led to an active discussion surrounding the use of the term itself. Industry participants are moving away from ESG, opting instead for other terminology, such as “sustainability” or “impact.” Some companies are being more precise about how certain topics underneath ESG, like climate change, may pose a material financial risk to their business.
Given the pushback, companies may be uncertain about how to integrate ESG analyses and topics into reports and filings. “Greenwashing” accusations have led to a diminished flow of information. However, silence around a company’s ESG practices and policies may not be the best approach, as investors may question what ultimately led to the decision to be less transparent.
Consistency between disclosures and filings is important. Sustainability disclosures should be viewed holistically to ensure they align with other filings, releases, or relevant regulated disclosures. Adopting established reporting frameworks favored by investors can help ensure consistent and comparable disclosures are grounded in the type of disclosure the market is looking for.
Companies often need to navigate how to effectively manage stakeholder interest in company disclosure with increased regulatory scrutiny. US issuers operating in Europe also navigate an increased reporting burden in one jurisdiction while mitigating risk of litigation posed by disclosure in another.
When it comes to external communication, executives are encouraged to be thoughtful and prepared to support disclosure with information, especially if a company needs to backtrack on a prior goal or issue. Investors appreciate clear and accurate information about ESG practices, and transparency and responsiveness are vital.
While no one can predict the future, what might we expect to find down the road?
- Continued discussion on what are the relevant material items for companies based on their region of operation and industry
- Stakeholders, including regulators and investors, who have differing perspective and views on what a company should be focused on
- Further consolidation of frameworks and standards
- Increased regulatory scrutiny, both in the US and around the world
- The first and second order effects of AI on people and the planet as it transforms the global economy
If you have questions on any ESG or related areas, contact me at kmoote@georgeson.com.
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