ESG Disclosure - Swirling Public Dialogue on Status & Value Today and in Future for Corporate Constituencies

The required financial reporting by publicly-traded companies is assured by third parties. The SEC rules require public companies to have an annual audit; audited financial statements have an opinion included from the auditing firms. Objective: determining if the statement presents information fairly and in line with GAAP (Generally Accepted Accounting Principles).

What does the outside auditor do in the financial reporting process? Explains Ed Bannen at BGQ Partners LLC in Ohio: The most rigorous level of assurance is provided by an audit. It offers a reasonable level of assurance that financial statements are free from material misstatement and conform with GAAP.  But what about the volume of corporate ESG / sustainability / responsibility reports flowing out from issuers to investors and other stakeholders? The “non-GAAP stuff” of ESG at present?

The International Federation of Accountants (IFAC) “warns” that only half of companies back up their sustainability reports with assurance (IFAC looked at 1400 companies).  This presents “an emerging investor protection and financial stability risk.”  There is “some” level of ESG reporting by 91 percent of companies in 22 governmental jurisdictions now, but reporting standards used are inconsistent and IFAC urges that assurance practices need to mature alongside corporate ESG reporting.

Of course, the accountants noted that often where there is ESG assurance provided it is not by professional accountants but by other types of consultancies. We bring you background on this from CFO Dive: Investors representing literally tens of trillions of AUM are looking for consistent, comparable, decision-useful information to determine whether to invest, sell or make a proxy vote…  SEC Chair Gary Gensler was quoted saying: “Therefore, SEC staff will be recommending governance, strategy and risk management practices related to climate risk, and determine whether metrics such as GHG emissions are relevant for investor consideration.”.  Stay tuned to the SEC!

Summing up: the operating environment for leaders of publicly-traded companies is rapidly changing when it comes to ESG / sustainability, public disclosure and structured reporting. In both the U.S. and in the European Union, regulators are proposing dramatic changes in rules or appear to be in the process of developing guidance and rules (and frequently in the U.S., issuing interpretations that reflect important changes in policy thinking about reporting).

We bring you four important updates on these public discussions going on in our Top Stories selections for this week. On a recent webinar hosted by our partner organization, DFIN Solutions, there were 1,000 professionals registered for the session. About half of the attendees answered a survey question about whether or not their firm publishes a sustainability report, with about half saying “no” or “did not know.” Clearly there is an urgent need for more corporate managements to become informed about ESG disclosure. Information about the webinar “Navigating the Corporate ESG Journey: Strategies & Lessons Learned Featuring FIS Global, IR Magazine’s 2020 Best ESG Reporting Award Winner,” co-hosted by G&A Institute’s EVP Louis Coppola is here: https://info.dfinsolutions.com/navigating-corporate-ESG-journey-replay

Useful background from Ed Bannen, Senior Manager of GBQ’s Assurance and Business Advisory Servicesregarding statement assurance, auditing and related topics is here for you: https://gbq.com/levels-of-assurance-choosing-right/

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