Following a very challenging 18 months, the US (if not all areas of the world) appears to be making significant progress emerging from the COVID pandemic. During 2020, many companies were forced into survival mode. Recognizing this, investors showed some forbearance as they evaluated company progress on longer-term sustainability initiatives. That said, the pandemic experience has galvanized investor resolve that their longer-term focus on sustainability is correct, and they expect their portfolio companies to resume progress on their “sustainability journeys” and related reporting.
Accelerated pace of change -- and of reporting -- highlight need for consistent messaging
Three primary and interrelated factors are driving an acceleration and broadening of reporting to investors and other stakeholders:
1. Renewed ESG focus by investors:
Companies will resume their sustainability journeys, identifying risks and opportunities, setting priorities, and measuring progress, as well as reporting on resultant new strategies and progress through multiple channels.
2. Disclosure of COVID impact:
Many companies are discussing COVID impact on their performance and workforces, and their strategic responses around company strategy, employee wellness, supply chains and overall resilience. Significant attention is being placed on board oversight of an expanding array of traditional as well as ESG related risks and opportunities.
3. New regulatory human capital disclosure requirements:
As part of its initiative to modernize Regulation S-K, the SEC approved new rules, effective November 9, 2020, that instruct companies to apply a principles-based approach to the materiality of human capital considerations to their business, which could trigger additional disclosures. This dovetails with intensifying investor interest in board, executive and workforce diversity, equity and inclusion.
For many companies, the above three drivers are interrelated, with employee health and safety at the nexus of COVID impact and expanded ESG and human capital strategies and disclosures.
Opportunity to Harmonize Messaging Across Documents
Given the “new normal” we are encountering, many companies will simultaneously be undertaking a) strategic and operational changes, as well as b) expansion of related disclosures. Unless carefully attended to, this may exacerbate an issue that investors – and companies – had focused on pre-pandemic – inconsistent or mixed messages between different documents and distribution channels.
This article will discuss these trends and intensification of reporting, and offer some suggestions for harmonization of messaging across channels.