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Aug 11, 2021

US issuers still split on ESG standard and framework preferences, study finds

As the SEC considers imposing mandatory climate-related reporting rules, US public companies are divided on what they should look like

Half of US public companies say that third-party ESG standards are difficult understand, address immaterial information and lack transparency, according to a report by the US Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC).

Despite recent and concerted efforts to standardize ESG reporting standards and frameworks, only 9 percent of companies report that standard setters provide consistent, easy-to-understand metrics.

A staggering 41 percent of companies report that they do not rely on any standard-setting body when developing climate change and ESG disclosures for SEC filings.

Of those that rely on one or more third-party standard-setting bodies, there is little consistency. Nearly half (44 percent) use SASB, 31 percent use GRI, 29 percent use TCFD and 24 percent use the Carbon Disclosure Project (CDP).

Other standards used by several companies have reportedly been developed by industry-specific organizations, such as the Edison Electric Institute’s sustainability reporting template.

While many commentators and market participants expect third-party assurance of ESG data to become a widely-adopted practice in the mid-to-long-term, only 28 percent of respondents currently provide some form of third-party assurance.

Split opinions on mandatory ESG reporting requirements

Recently SEC chair Gary Gensler asked the SEC staff to develop a mandatory climate risk disclosure rule proposal by the end of the year, and the SEC recently sought input from the capital markets community on what climate-related disclosure requirements should look like.

According to CCMC’s research, 84 percent of companies agree that any climate change disclosure rules adopted by the SEC should reflect the differences between the different industries.

Indeed, 61 percent of respondents say that the term ESG is subjective and that it means different things to different companies, making it difficult for regulators to define. Opinions are evenly split on the idea of the SEC adopting uniform standards for climate change information, with 36 percent of companies supporting and 36 percent opposing the idea.

Nearly half of companies (43 percent) believe the SEC should adopt a comply-or-explain approach to climate disclosure whilst 33 percent are opposed.

There are even more split opinions on whether the SEC should mandate uniform climate disclosures. More than a quarter (27 percent) of respondents say that the SEC should designate one existing standard-setter to establish standards, while 21 percent would support the SEC designating multiple standard setters and 24 percent believe the SEC should develop and maintain the standards directly.

Increased communication with shareholders over climate change

Since the SEC issued its 2010 climate reporting guidance, the majority of companies (59 percent) are disclosing more information regarding climate change. Only 1 percent say they are disclosing less information during than they were a decade ago.

Nearly two-thirds (63 percent) of respondents say they are communicating with their shareholders regarding the evolving risk of climate change.

This engagement is informing the nature of ESG disclosures; 46 percent of respondents say they have increased the level of detail in climate change reporting due to shareholder input and 15 percent have increased their reporting frequency about climate change.

Maria Ward-Brennan

Maria Ward-Brennan

Maria Ward-Brennan joined IR Magazine as a reporter based in the London office. Previously, she worked as a reporter at Captive Insurance Times, covering a niche specialty insurance market. Maria graduated from the University of Huddersfield in 2019...