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August 12, 2016

SEC Urged to Strengthen ESG Reporting Requirements
    by Robert Kropp

Ceres organizes an investor coalition calling for regulations to strengthen corporate climate reporting, while US SIF and ICCR issue a joint press release urging mandatory sustainability reporting.

In April, the Securities and Exchange Commission (SEC) published a concept release relating to Regulation S-K, seeking public comment on modernizing the business and financial disclosure requirements in corporate reporting to the Commission.

“Timely, relevant and material information is critical to investors and companies,” said SEC Chair Mary Jo White. “The concept release establishes a thoughtful framework for better understanding investors’ and companies’ experiences with the disclosure requirements and whether investors are receiving the information they need to make informed investment decisions.”

Sustainable investment organizations, which for years have been advocating for thee inclusion of environmental, social and corporate governance (ESG) factors in corporate reporting, were quick to respond. In July, a coalition of 45 institutional investors organized by
Ceres and representing some $1.1 trillion in assets under management, wrote to the SEC; the letter specifically references climate change as posing material risks “which we believe are becoming increasingly significant to companies in multiple sectors.” It said that the “business plans of many oil and gas, electric power and coal companies appear to pose material financial risks to investors because they are based on forecasts for increasing demand that fail to take into account the accelerating transition to a low carbon global economy.”

“SEC Chair Mary Jo White’s recent statements that sustainability disclosure ‘has our attention’ are a real shift in the SEC’s posture,” said Ceres president Mindy Lubber. “The Commissioner and its staff should immediately step up efforts to enforce its existing rules to improve sustainability reporting.”

In a joint press release issued by
US SIF: The Forum for Sustainable and Responsible Investment and the Interfai th Center on Corporate Responsibility (ICCR), the organizations called for the incorporation of ESG factors as part of required disclosure for public companies.

“There is an increased demand from investors for corporate sustainability reporting,” US SIF CEO Lisa Woll said. “Issues related to sustainability disclosure are particularly critical because investors are increasingly integrating environmental, social and corporate governance (ESG) information into the investment process.”

“Mandatory disclosure related to sustainability issues is critical to create transparency for investors regarding a company's interactions with, and impact on, employees, communities and customers,” ICCR CEO Josh Zinner said. “For example, information about the human rights risks present in a company's operations and supply chain, as well as the management of those risks, is highly relevant information for an investor in assessing a company's performance and management approach in both the short- and long-term.”

Zinner also observed, “While voluntary measures have served an important role in providing increased ESG information to investors, this information is inconsistent across corporate sectors, and leaves investors with an unclear basis upon which to build our investment and engagement strategies.”

A recent
news article in Scientific American points out that while corporations tout sustainability measures in press releases, few of those measures are included in mandatory filings with the SEC.

The usual suspects among business trade associations—the US Chamber of Commerce, the American Petroleum Institute and the National Association of Manufacturers—“oppose the SEC’s steps to tighten its climate disclosure rules,” the article states.


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