
Dan Brecher
Counsel
212-286-0747 dbrecher@sh-law.comFirm Insights
Author: Dan Brecher
Date: December 27, 2019
Counsel
212-286-0747 dbrecher@sh-law.comThe U.S. Chamber of Commerce recently issued best practices for companies that seek to disclose information about their Environmental, Social, and Governance (ESG). The guidelines are timely given that ESG has become a priority in many corporate boardrooms, largely due to the increasing expectations of investors and the public.
The term environmental, social, and governance refers to the three central factors used to measure the sustainability and ethical impact of an investment in a business. In terms of environmental concerns, climate change and sustainability are among the chief concerns. Meanwhile, the top social concerns include diversity, human rights, consumer protection, and animal welfare. With regard to corporate governance, employee relations, management structure, and executive compensation are key ESG concerns.
In light of recent scandals involving vehicle emissions, food safety, and sexual harassment, investors are increasingly aware that weak ESG practices can lead to legal, and reputation risks that hurt a company’s bottom line. At the same time, strong ESG practices can result in enhanced company performance.
As ESG performance has become more relevant to investors, many companies now provide their own figures and data via voluntary disclosures. According to KPMG, 83 percent of the top 100 companies in the Americas published a corporate responsibility report in 2017, along with 77 percent of the top 100 companies in Europe and 78 percent in Asia. Of the largest 250 companies globally, reporting rates are 93 percent.
When ESG information is material under federal securities laws, public companies are obligated to include it in their filings with the Securities and Exchange Commission (SEC). However, in other cases, companies make voluntary ESG disclosures. As a result, the content and format of ESG disclosures can vary significantly.
While some have called on the SEC and Congress to enact ESG regulations, the U.S. Chamber of Commerce is hopeful that its best practices can “help steer the development of a widely-approved approach to voluntary ESG reporting without the need for additional regulatory mandates.” It also highlights that because the relevance of certain ESG factors differs from industry-to-industry and company-to-company, flexibility is important. Based on the foregoing, the U.S. Chamber of Commerce has established the following best practices for enhancing the effectiveness of ESG disclosures:
Voluntary ESG disclosures can have both risks and rewards. As with all corporate disclosures, it is also advisable to work with experienced counsel to ensure that your corporate disclosures are tailored to the unique circumstances of your company.
If you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.
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