Organizations are under increasing pressure from shareholders, regulators, and other key stakeholders to report on environmental, social, and governance (ESG) issues. The movement to accurately measure and report the impacts that organizations have on the environment, climate, natural resources, workforce, and community (and their related ethical implications) is rapidly changing how the public inte
racts with and values businesses and government institutions. The business world is clearly responding. In 2011, 20% of companies on the S&P 500 issued reports related to sustainability, according to the Governance & Accountability Institute. Today, that number is 90%.
It is not surprising, then, that measuring the accuracy of this new discourse has come under increased regulatory scrutiny. The U.S. Securities and Exchange Commission (SEC) announced on March 4 that it has created a 22-member Climate and ESG Task Force within the Division of Enforcement to monitor how organizations report their climate- and ESG-related disclosures to investors. Based on that announcement, it is clear the task force is focused on enforcing reporting rules. “Proactively addressing emerging disclosure gaps that threaten investors and the market has always been core to the SEC’s mission,”
Acting Deputy Director of Enforcement Kelly L. Gibson, who will lead the task force, said in the SEC’s statement. “This task force brings together a broad array of experience and expertise, which will allow us to better police the market, pursue misconduct, and protect investors.” Internal auditors are well-positioned to support their organizations in this evolving risk area. While most regulations on ESG reporting are relatively new, the processes for evaluating the effectiveness and efficiency of any regulatory compliance regime are well-established — validating that reporting processes are complete, accurate, timely, and relevant.U.S. SEC: Environmental, Social, and Governance Risks Better Be on Your Radar