Could a Tweet Turn the Tide on ESG Reporting?
In the world of environmental, social, and governance (ESG) matters, one picture this week has been worth plenty of words.
This week, Apple Vice President Lisa Jackson tweeted a photo of a statement from Arvin Ganesan, Global Head of Environmental and Energy Policy for Apple, in which he called for the Securities and Exchange Commission to require companies to disclose information on direct and indirect emissions, with information audited by a third party.
“Disclosure is an important tool in the fight against climate change,” he said. Among those "liking" the tweet was Environmental Protection Agency Administrator Michael Regan.
SEC staff members are already evaluating rules for climate change disclosures as investors seek more of it, and U.S. Special Presidential Envoy for Climate John Kerry let it slip this week that President Biden planned to issue an executive order soon to require disclosure. Meanwhile the European Union’s Sustainable Finance Disclosure Regulation (SFDR) is requiring financial market participants and advisers to disclose ESG factors in investment recommendations. That’s expected to steer more investment in sustainable businesses and drive changes in business behavior.
Even without the tweet, with the ever-enhancing profile of ESG disclosures, audits of this data are surely right around the corner.
We could debate whether mandatory disclosures are needed if markets are already rewarding companies that are making voluntary disclosures. But the support from Apple executives for mandates reminds me a bit of the 1970s. Around that time, companies were giving the newly formed Financial Accounting Standards Board the side-eye. But then GE Chairman Reginald Jones urged businesses to support it, and FASB is still going strong today. Could Lisa Jackson’s tweet bring more businesses around to ESG disclosures?
A layup for Apple
For Apple, supporting disclosures related to emissions feels like an easy layup, but the company put themselves in position to take a shot. The company has been publishing its greenhouse gas emissions for years, and the tweet adds that much more pressure on competitors to do the same.
Mandi McReynolds, Senior Director of Environmental, Social, Governance at Workiva, said we will see more and more company executives speak publicly on matters that have impacts on people and the planet.
“As trust erodes among consumers, you’re going to see people turn to businesses to be the voice of reason and take a stand,” she said. “The only way businesses can take a stand is if their disclosures are backed up by authentic data and reporting.”
What climate disclosures will look like is yet to be determined:
If regulators follow Apple executives’ suggestion, who would qualify as credible third-party auditors of disclosures?
How will climate disclosure regulations change over time?
Will disclosures be machine-readable, with XBRL® tagging, for example?
While Apple executives’ clarion call for a disclosure mandate is significant, it isn’t singular. BlackRock, for its part, let companies know earlier this year what they want to see, including how companies’ business models fit in a world that’s working toward net zero greenhouse gas emissions by 2050. And public accounting firms clearly won’t be disappointed to have another reason to engage their clients for more attestation and assurance work.
What’s ahead for reporting teams
With some sort of ESG mandate all but certain for U.S. public companies, SEC reporting teams will need to have a collaborative and flexible platform that enables contributors with both ESG and financial data to work together on disclosures as they evolve—and to report consistent data to investors and regulators around the world who may seek different variations of ESG information, all while being ready for audit scrutiny.
Regardless of what they ultimately require, standards could:
Help investors compare companies more reliably
Influence company spending as businesses address climate risks
Spark a reallocation of capital, as investors consider long-term, climate-based risks, John Kerry has said
Even though not every company publishes ESG or climate disclosures today, there are compelling reasons to do it, from attracting investors to managing emerging risks more effectively to potentially lowering borrowing costs.
“Analysts, rating agencies, and stakeholders are interested in your progress versus perfection,” Mandi said. “They’re interested in the real disclosure story: where you are, where you’ve started, and where you’re going to go.”
Let’s see if other companies weigh in with their own ideas of what climate disclosures should look like.
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About the Author
Steve is Senior Director of Product Marketing and Accounting Industry Principal at Workiva. Previously, Steve served as an accounting leader in multiple roles including Vice President and Controller for Backcountry.com, a private equity owned, online retailer of outdoor products, and as the Director of SEC Reporting for Overstock.com (NASDAQ: OSTK), a $2 billion revenue, online retailer of home goods and blockchain technology company. His experience includes multiple acquisitions, debt offerings, an IPO, and the world’s first digital debt and equity offering (by Overstock). Steve is the Executive Advisor of the SEC Professionals Group, and a former member of the US XBRL Data Quality Committee. He began his career as an auditor in public accounting, received his Accounting degree from the University of Arizona, graduating summa cum laude, and received a Master of Accountancy and Information Systems degree from Arizona State University.