The SEC and Improving Sustainability Reporting

In this discussion that took place at the SASB 2016 Symposium, the former Chair of the Securities and Exchange Commission explores recent developments in corporate sustainability reporting with three Directors—two past and one current—of the SEC's Division of Corporation Finance (or “CorpFin”). The consensus of the panelists was that investors want companies to provide more and better disclosure of their ESG exposures, particularly climate change, and their plans to manage those exposures. According to the current director of CorpFin, the most common demand expressed in the thousands of “comment letters” elicited by the SEC's recent concept release was for more and better sustainability information. And among the many issues cited by investors in those letters, including economic inequality, corruption, indigenous rights, and community relations, the subject of greatest interest by far was climate change. While none of the panelists claimed to see private‐sector demand for SEC action and a new set of mandatory requirements, all seemed to agree that many companies would welcome the establishment of voluntary guidelines and standards for providing ESG information—and that the guidelines recently developed by the Sustainability Accounting Standards Board are a promising model. For companies in each of 79 different industries, the SASB has identified a specific set of “material” concerns along with metrics or KPIs that can be used to evaluate corporate performance in responding to those concerns. Perhaps the most important advantage of this approach is that, by limiting such reporting to material exposures (and so adhering to a principle that has long informed SEC requirements), the SASB guidelines should significantly increase the relevance and value to investors—while possibly holding down the costs—of the sustainability reports that large companies in the U.S. and abroad have been producing for decades. But, as the former SEC Chair also notes in closing, the adoption of such guidelines by companies should be viewed as just a first step toward improving disclosure. To help companies develop the most useful and cost‐effective disclosure practices, investors themselves will have to become more active in communicating their own demands and preferences for information.