The SEC is moving—slowly—toward including environmental, social, and governance (ESG) disclosures in public company filings. Although the U.S. House of Representatives’ Financial Services Committee in July 2019 rejected a bill that would have aligned ESG reporting standards closer to those found in the EU and required climate change risk factor disclosures, ESG is an issue only likely to gain in prominence in the near future.
Companies may have dodged increased ESG disclosure regulation for the moment, but pressure is mounting on companies to provide ESG information. As recently as Oct. 15, credit ratings agency Moody’s warned that asset managers face growing credit risk if they fail to address ESG concerns by investors. Whether by legislation, SEC rule, or simply to satisfy the growing demands of investors for more and clearer information of this type, public reporting companies in 2020 will increasingly find they need to provide ESG disclosures.
Europe is ahead of the U.S. in responsible investing. And it’s far ahead of the U.S. in mandating disclosure of ESG risks and opportunities by financial market participants and financial advisers. The EU’s ESG disclosure regime works to harmonize disclosures across both sectors and financial market operators. It does this by requiring ESG risks and opportunities be disclosed in a consistent, standardized way that enables comparison.