The Government Accountability Office has issued a 62-page report on ESG disclosures — why investors want them, what public companies are doing, and the advantages and disadvantages of voluntary vs. mandatory disclosure regimes. The report itself doesn’t give much info that people in this space don’t already know — investors want ESG info, companies are working hard to provide it, there are gaps and inconsistencies in company disclosures due to the lack of standardized and prescriptive disclosure rules, and competing disclosure regimes pose important trade-offs.
One interesting tidbit — which may become relevant as investors and companies increase their focus on equity and resiliency going forward — is that companies seem to have come around to at least providing narrative cybersecurity information after the SEC’s emphasis on that issue for many years, but data about human rights and health & safety is harder to come by:
As shown in figure 2, we identified disclosures on six or more of the eight ESG factors for 30 of the 32 companies in our sample and identified 19 companies that disclosed information on all eight factors. All selected companies disclosed at least some information on factors related to board accountability and resource management. In contrast, we identified the fewest companies disclosing on human rights and occupational health and safety factors.
With regard to the 33 more-specific ESG topic disclosures we examined, 23 of 32 companies disclosed on more than half of them. The topics companies disclosed most frequently were related to governance of the board of directors and addressing data security risks. Conversely, based on disclosures we identified, we found that companies less frequently reported information on topics related to the number of self-identified human rights violations and the number of data security incidents.
In addition, we found that companies most frequently disclosed information on narrative topics and less frequently disclosed information on quantitative topics. There are several reasons why a company may not have disclosed information on a specific ESG topic, including that the topic is not relevant to its business operations or material.
Senator Mark Warner (D-VA), who had requested this report back in 2018, is now calling on the SEC to establish an ESG task force to consider requiring disclosure of “quantifiable and comparable” metrics. He seized on the GAO’s finding that even quantifiable metrics like carbon dioxide emissions are reported differently from company to company. As Lynn blogged last week — and as noted in a Wachtell Lipton memo — some standard-setters are starting to collaborate, which may help clarify reporting frameworks for companies and investors alike.
-Liz Dunshee, TheCorporateCounsel.net July 20, 2020
