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From: Compliance Week By Aaron Nicodemus

More companies are recognizing the value of aligning their business models with environmental, social, and governance (ESG) concerns, acceding to the demands of shareholders, activists, the market, and the public. ESG encompasses issues like climate change, diversity and inclusion, and corporate sustainability.

“No question, there’s been an increase in the number of companies reporting separately on ESG initiatives,” said Kevin Ewing, a partner at the firm Bracewell who advises energy and infrastructure companies.

“The convergence of the COVID-19 pandemic, increased consciousness of race, diversity and inclusion in our communities, and the devastation created by extreme weather and climate change have cemented the theme of sustainability as the business community’s No. 1 priority.”

Douglas Peterson, President and CEO, S&P Global

Several recently released reports highlight this growing trend. Companies not pursuing ESG initiatives place themselves at a competitive disadvantage in a marketplace that increasingly demands accountability in this regard.

NAVEX Global survey released Wednesday of 1,250 management and senior-level executives in the United States, United Kingdom, France, and Germany found 88 percent of publicly traded companies have ESG initiatives in place, followed by 79 percent of venture and private equity-backed companies and 67 percent of privately owned companies.

“ESG has continued to grow in importance, with multiple stakeholders exerting pressure on organizations to address issues related to corporate, environmental and social responsibility,” NAVEX Global CEO Bob Conlin said in the survey. “While global standards and regulations are still nascent, businesses aren’t waiting. They recognize that prioritizing ESG is an investment in competitiveness and future success.”

Research firm S&P Global’s annual Sustainability Yearbook serves as a popular benchmark for ranking sustainability efforts. The  2021 edition of the report, released Monday, names over 7,000 companies as world leaders in sustainability (read methodology  here). Data compiled in the S&P Global Sustainability Yearbook is a key factor for selecting companies for the Dow Jones Sustainability Indices and is used as an analytical tool for a growing series of S&P ESG indices, including the S&P 500 ESG Index.

The 7,032 companies included in the S&P Global yearbook was a record, as was the more than 7,300 companies assessed for inclusion, the firm said. Next year, the number of companies assessed will top 10,000, according to the yearbook’s methodology.

While 2020 was a particularly difficult year for businesses worldwide, including those in the yearbook, the disruptions only increased commitment to sustainability, said S&P Global President and CEO Douglas Peterson.

“The convergence of the COVID-19 pandemic, increased consciousness of race, diversity and inclusion in our communities, and the devastation created by extreme weather and climate change have cemented the theme of sustainability as the business community’s No. 1 priority,” Peterson wrote in the yearbook’s overview.

Pressure to support ESG initiatives is coming from within organizations themselves, driven by demands of younger workers, according to the  2020-21 Global Talent Trends Study conducted by consulting firm Mercer. One in 3 employees say they want to work for an organization that shows responsibility toward all stakeholders, the report found.

One in 4 HR leaders plans to intentionally invest time to build back sustainably from the downturn of 2020, the Mercer report said, while 1 in 5 will step up the pace in implementing a business approach focused on ESG goals.

Will regulators follow ESG trend with new rules?

The focus on ESG by investors and the public could be amplified and codified in regulation.

The United Kingdom  announced last year it will be the first country in the world to require companies to report the material impact they experience by climate change, in line with the recommendations of the Financial Stability Board’s widely adopted  Task Force on Climate-Related Financial Disclosures (TCFD) by 2025. New Zealand announced  similar plans for climate risk disclosures by 2023, but it will be a less stringent “comply or explain” regime.

American companies have lagged behind their European counterparts in pursuing ESG initiatives and formal program implementation, according to the NAVEX Global report.

A very high proportion of respondents from France (86 percent) and Germany (86 percent) indicated they worked for companies that have formal ESG reporting processes in place, while the United Kingdom (82 percent) wasn’t far behind. However, only 74 percent of U.S. respondents indicated the same, the report said.

Experts predict the U.S. Securities and Exchange Commission (SEC) under President Joe Biden’s nominee, Gary Gensler,  will focus its attention on disclosures related to climate change risks and may also require financial advisors to issue more specific disclosures regarding funds promoting ESG-related investing strategies.

Initially, the SEC may issue guidance on its expectations for such disclosures; rulemaking may follow.

Ewing argues corporate ESG disclosures, made without a regulatory mandate but still subject to fairness and accuracy standards for investor information by the SEC, provide publicly traded companies with “the flexibility to scratch the interest of the marketplace” without having to relate them back to the materiality standard for financial disclosures.

Ewing says it would be a mistake to require companies to drop voluntary ESG reporting in favor of materiality-limited reporting in their financial disclosures, like on Form S-K. Companies “can offer a lot more information and context to the marketplace” on their ESG initiatives through voluntary disclosures, he said.

Article Link:  https://www.complianceweek.com/social-responsibility/companies-not-reporting-esg-initiatives-are-in-the-minority/30033.article