Challenges for Corporate Managers in the Changing ESG Reporting & Disclosure Environment

Today, organizations and their leaders find themselves attempting to navigate in a complex and fast changing environment for ESG and Sustainability -- where there are many simultaneously developing policies around the world, and various new, converging, and maturing reporting standards focused on ESG topics. Many corporate leaders wonder where we will be in 20 years from now when it comes to good corporate governance? What will corporate disclosure look like in the year 2043?

If we were writing this introduction to Highlights two decades ago – say, in summer 2002 – the topic would be the “Sarbanes-Oxley” comprehensive package of laws that the U.S. Congress passed that year -- and the potential impact on corporate governance and a wide range of disclosure requirements. (The formal title of the package was Public Company Reform and Investor Protection Act of 2002, with eleven separate “titles” passed.)

The passage of “SOX” followed a parade of spectacular collapses of publicly-traded companies, such as Enron (ranked #7 in the Fortune 500® at the time), and other corporate scandals (WorldCom, Adelphia Communications, et al). SOX was intended to bring about greater corporate transparency from the legislation and the implementation of rules that followed.

Boards of directors and C-Suites were being advised in abundance by outside counsel, accounting and auditing firms, consultants, and professional associations (such as American Bar Association, National Association of Corporate Directors, National Investor Relations Institute), who were parsing the many pages of SOX and providing advice and guidance to corporate clients. Dramatic changes were in the air as new rules-of-the road were adopted for corporate policy-making and organizational behaviors, in such areas as governance, finance, accounting, investor relations, and in corporate disclosure and reporting.

One law – “Title IV, Enhanced Financial Disclosures” – resulted in the rule mandating that both the CEO and CFO sign off on required financial filings. “Title VI, Strengthening SEC Resources and Authority” beefed up that agency’s resources and enforcement clout. Title XI, officially the Corporate Fraud and Accountability Act – also strengthened SEC investigation and enforcement and stiffened Federal criminal and civil penalties for wrongdoing.

The changes that followed SOX passage resulted in a more challenging operating environment for corporate boards and C-Suites. In that context, we wonder what we may be commenting on a decade or two from now, in 2033, or 2043, as we approach critical deadlines for elements of the Paris Agreement and compliance with important ESG disclosure frameworks and standards in Europe, the UK, and in the United States. It is clear that the ever-changing operating environment for both corporate and capital market players presents complex challenges for senior executives, for line and functional managers, boards of directors, and for asset and resources managers in both corporate sector and capital markets.

Stakeholders in the U.S., Canada, UK, and European Union expect greater transparency about the inherent risks and opportunities related to the challenges of many critical issues:  the climate crisis; corporate plans for reduction of carbon emissions; choices in energy supply; demands for greater diversity, equity, and inclusion (DEI); ; plans for wise use and protection of natural resources including water; expanding choices for fiduciaries in asset classes as ESG continues to shape capital markets perceptions and activities; results of life cycle analysis for products (out to end of life)…and much more.

The Top Story and other news that we present in this issue are intended to help inform your organization about the voluntary and mandatory ESG disclosure requirements being developed in jurisdictions around the globe. We believe that reporting standards in North America, Europe, Asia-Pacific will in coming years have the kinds of impact on governance, accountability, and ESG disclosure practices that will be strikingly similar to the impact of SOX two decades ago. And so, we invite your reading about “what’s coming at us” in our choice of news in this issue.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.