Carrot Outweighs Stick for U.S. Sustainability Reporting

Stay current on changes and developments in corporate law with a wide variety of resources and tools.

By Andrea Vittorio

The carrot likely will be even more important than the stick in driving corporate reporting on environmental, social and governance (ESG) issues in the U.S. going forward.

Voluntary disclosure of what companies are doing to measure and manage their sustainability performance has worked so far. Eighty-one percent of S&P 500 companies published a sustainability or corporate responsibility report in 2015, up from just 20 percent in 2011, according to research by the Governance & Accountability Institute.

“None of that was driven by regulation,” the institute’s executive vice president Louis Coppola told Bloomberg BNA. “There is no regulation in the U.S. that mandates sustainability reporting,” he said, at least not in standalone reports.

The nation’s securities regulator had been weighing possible sustainability disclosure requirements or guidance before the election. Under the next administration, it is more likely to move in the opposite direction by paring back what ESG disclosures it does require.

“ESG-type disclosure rules,” on issues such as conflict minerals and executive pay, “may end up being the first to be attacked,” George S. Georgiev, an Emory University School of Law professor who teaches securities regulation and corporate governance, told Bloomberg BNA. Sustainability advocates are also concerned that regulators may be blocked from enforcing guidance on how companies should report on climate change.

Disclosure Demand

Some may see that as “an excuse not to do this anymore,” Coppola said, but customers, employees and investors will still demand sustainability information. Companies are also starting to appreciate how poor sustainability management, including in their supply chains, can affect growth and profitability.

“The sentiment I’ve heard from my clients is: we’re going to keep going for sure,” said Steven Swartz, a partner in McKinsey & Co.'s Center for Business and Environment, “because there’s an economic rationale, such as reduced costs and lower earnings volatility, as well as risk mitigation and reputation benefits for pursuing these initiatives.”

Now that companies are recognizing the business value of sustainability reporting and practices, “it becomes more attractive to live up to voluntary frameworks,” said Wim Bartels, global head of sustainability reporting and assurance at KPMG.

Better Disclosure

Most companies already include some form of sustainability disclosure in their Securities and Exchange Commission filings, which the Sustainability Accounting Standards Board considers a sign that they think ESG issues are financially material. The nonprofit organization is developing sector-specific standards for corporate sustainability disclosure. (Michael Bloomberg, founder of Bloomberg BNA’s parent company Bloomberg LP, chairs its board.)

“I think we’ve gotten over the materiality hurdle,” SASB’s chief executive officer and founder Jean Rogers told Bloomberg BNA. “The next hurdle is the quality of disclosure.”

Sustainability disclosures lack standardization, making it difficult for shareholders to benchmark companies against their peers. Investors representing trillions of dollars around the world demanded better sustainability reporting when the SEC asked for feedback on several disclosure issues in April.

The last time the commission looked at corporate disclosures on environmental and social matters was in the 1970s. “It may be a long time before we put sustainability back on the table at the SEC,” Hank Boerner, the G&A Institute’s chairman and CEO, said.

Market Forces

No matter what happens nationally, there are other market forces driving sustainability reporting, including the world’s stock exchanges.

Twelve exchanges currently incorporate ESG disclosure into their listing rules and 15 provide formal guidance on the subject to issuers, according to the latest count by the United Nations-led Sustainable Stock Exchanges initiative. That total is set to nearly double as exchanges from London to Nairobi carry through on commitments to do the same.

“It’s very much embedded in market forces,” the initiative’s coordinator Anthony Miller told Bloomberg BNA. “So that gives us reason to believe it will continue unabated.”

To contact the reporter on this story: Andrea Vittorio in Washington at

To contact the editor responsible for this story: Yin Wilczek at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Corporate on Bloomberg Law