ESG Disclosures in the Regulatory Spotlight

During the first quarter of 2021, the Securities and Exchange Commission (SEC) has moved toward updating the requirements and enforcement for environmental, social, and governance (ESG) disclosures for public companies. This push is intended to provide investors with more information about corporations’ compliance accuracy when dealing with ESG disclosures.

Climate-related issues have become a significant consideration for investors, and the SEC is working on improving existing guidance for organizations to follow when filing ESG disclosures. In addition, the SEC announced the creation of the Climate and ESG Task Force in the Division of Enforcement. This task force will actively seek out ESG violations by analyzing disclosures and determining if there are any misstatements associated with climate risk. The task force will also be analyzing whistleblower complaints about companies that are not complying with ESG standards.

The level of voluntary ESG disclosures has increased over the past few years, and in many cases, keeping these disclosures voluntary can be beneficial, while others push for a global standard. Voluntary disclosures have increased due to demand from investors, and the SEC has discussed the implementation of mandatory disclosures.

Regardless of whether ESG disclosures become mandatory or not, the SEC is likely to expand rules and provide more transparent and reliable guidance for adhering to requirements. It’s more important than ever for organizations to accurately assess and prevent climate-related risks as well as follow proper rules and regulations for SEC disclosures.

( Read more > ESG Risks: SEC Signals New Regulatory Focus )

To proactively prepare for these changes, organizations need to have a well-thought-out plan for tackling ESG compliance in the coming years, including:

• Setting objectives and goals that are in line with ESG statements and disclosures.
• Monitoring uncertainty and risk associated with these goals while maintaining stated values regarding the environment and ESG.
• Considering health and safety risks while abiding by full ESG monitoring and reporting requirements.

Organizations that have efficient methods for managing climate-related risk and ESG compliance will gain a competitive advantage and the ability to demonstrate and maintain corporate values related to environmental and social issues.