GAO: Investors Need More and Better ESG Disclosure

A new report from the independent Government Accountability Office

Most institutional investors GAO interviewed (12 of 14) said they seek information on environmental, social, and governance (ESG) issues to better understand risks that could affect company financial performance over time. These investors added that they use ESG disclosures to monitor companies’ management of ESG risks, inform their vote at shareholder meetings, or make stock purchasing decisions. Most of these institutional investors noted that they seek additional ESG disclosures to address gaps and inconsistencies in companies’ disclosures that limit their usefulness.

GAO’s review of annual reports, 10-K filings, proxy statements, and voluntary sustainability reports for 32 companies identified disclosures across many ESG topics but also found examples of limitations noted by investors. Twenty-three of 32 companies disclosed on more than half of the 33 topics GAO reviewed, with board accountability and workforce diversity among the most reported topics and human rights the least. Disclosure on an ESG topic may depend on its relevance to a company’s business. As shown in the figure, most companies provided information related to ESG risks or opportunities that was specific to the company, though some did not include this type of company-specific information.

Additionally, differences in methods and measures companies used to disclose quantitative information may make it difficult to compare across companies. For example, companies differed in their reporting of carbon dioxide emissions.
Policy options to improve the quality and usefulness of ESG disclosures range from legislative or regulatory action requiring or encouraging disclosures, to private-sector approaches, such as using industry-developed frameworks. These options pose important trade-offs. For example, while new regulatory requirements could improve comparability across companies, voluntary approaches can provide flexibility to companies and limit potential costs.

GAO ESG report

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