Whether you are a young growth company seeking initial recognition, or a more established and well-known company, you probably find you are constantly competing for capital with others around the globe. One powerful way to distinguish yourself is with a carefully crafted ESG message. Increasingly, active managers apply some form of ESG screening in their portfolio selection, and for indexed or passive managers, ESG-related matters are high on their list of engagement topics.
Ultimately, investors are seeking material, quantitative, decision-useful information that they can use in comparing relative risks across potential investments, and in measuring individual company progress toward reaching ESG goals.
A Confusing Reporting Landscape:
Many of our clients express concerns about the plethora of ratings, rankings and reporting frameworks. Some even state that a lack of clarity is inhibiting their ability to embark on their sustainability and disclosure journey.
There is some good news on this front. In September 2020, five major organizations -- the CDP (formerly the Carbon Disclosure Project), CDSB (Climate Disclosure Standards Board), GRI (Global Reporting Initiative), IIRC (International Integrated Reporting Council) and SASB (Sustainability Accounting Standards Board) issued a ‘Statement of Intent to Work Together Towards Comprehensive Corporate Reporting’.
Potential SEC Action:
On February 24, the SEC underscored its interest in stronger environmental disclosures. The Commission’s Acting Chair Allison Herren Lee directed the Division of Corporate Finance to enhance its focus on climate-related disclosure in public company filings, with the objective of updating its 2010 guidance on this topic.
Don’t Wait – Start Now!
While the convergence of voluntary reporting standards is a welcome development, neither that, nor any updated SEC guidance, should be used as a rationale to wait before initiating or progressing on your sustainability and disclosure journey. Remember that investors are watching NOW. We are already working with hundreds of companies to either initiate reporting, or fine tune and expand existing programs. We often hear these questions:
- Where should we start?
- What matters most?
- What should we disclose at our web-site, the proxy, 10-K and other channels?
To answer these questions, DFIN, along with our sustainability reporting partners the Governance & Accountability Institute (G&A), apply a five-step process. Importantly, this five-step process is equally applicable to proxy, AR, web-site and CSR report development. Following these steps helps ensure consistency of materiality prioritization, and of messaging, across documents and channels.