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3 min read Proposed Rule a Game Changer for ESG
Research from the Global ESG Monitor demonstrated a deficit for U.S. companies as it relates to ESG reporting. Upcoming federal rulemaking may be the perfect antidote.
Providing a full, transparent disclosure of a company’s ESG (Environmental, Social, and Governance) story is just what investors and clients are seeking. Unfortunately, minimal standards currently govern ESG disclosure in the United States, creating a lax environment for transparency and leaving stakeholders in the dark.
This reality was reflected in the recently released American version of the Global ESG Monitor. As this research produced by Xenophon and its partners showed, ESG disclosure in the U.S. is rather average overall and significantly behind European companies, creating an explicit need for a framework to guide future disclosures.
The Securities and Exchange Commission (SEC), an independent federal agency with regulatory authority over public companies, is in the process of adding uniform disclosure requirements as it relates to the “E” portion of ESG. In keeping with the agency’s mission to protect investors, new rules are being finalized to launch climate disclosure into the forefront of business operations at publicly traded companies.
The Enhancement and Standardization of Climate-Related Disclosures for Investors is expected to be finalized this spring, following the rule’s original rollout last May. When implemented, this groundbreaking update for sustainability reporting will create a treasure trove of new data regarding climate-related risks from corporations.
The proposed standard would require new disclosures from public companies, with the most prominent change including a reporting requirement for greenhouse gas emissions that are material to company operations and finances.
In addition to specified emission reporting, other mandated disclosures could include processes for managing environmental risk, how climate risks are affecting business strategy, and financial estimates for company activities affecting the climate.
Such information, as well as other requirements, would be mandated for inclusion in company registration statements and investor reports.
While corporate sustainability – and all principles of ESG – are important to prioritize, Xenophon and our global partners first and foremost believe that investors should be armed with reliable data behind a company’s operations. Creating a culture of transparency through robust reporting standards is key, and a necessity in 2023 due to increased investor demand.
With the implementation of new rules is expected to be a lengthy process, affected companies would be well advised to begin preparing to comply with the new disclosure requirements. To review a more comprehensive list of requirements under the proposal, check out the SEC’s official fact sheet here.
To prepare for the coming requirements, Xenophon Strategies can provide your company with custom reports analyzing sustainability disclosure practices. Visit our website at xenophonstrategies.com/esg-reporting to learn more.
