On March 8, 2022, Chief Executives for Corporate Purpose
(CECP) convened 17 CEOs and key legal leaders to discuss
newly proposed environmental and social governance (ESG) disclosure
requirements from the
SEC.
If adopted, the mandated disclosures would require publicly traded companies to
release information to investors about their emissions and how they are managing
risks related to climate change and future climate regulations.
Kelly Grier, US Chair and Managing Partner and Americas Managing Partner at
EY, led the discussion, saying: “Companies have stood up to talk about their
ESG commitments without any mandate, as they realize that ESG is a means by
which you realize your strategic imperatives. CEOs are the leaders on this and
will be held to account for those disclosures and the progress against them.”
“If the business community steps up in a constructive way to be supportive but
to suggest constructive improvement, it could be so helpful,” said Leo
Strine of Wachtell, Lipton, Rosen & Katz, and offered examples of how the
SEC could best approach the new rules. “If the SEC targeted 35 percent of the
right industries, they could get 80 percent of the impact they’re trying to
achieve. For a lot of other companies, their contribution to climate change is
just the multiplication factor of having their employees at
work.
Before getting to scope 3, maybe do scope 1 and 2 well in the key industries.
And focus on education in the initial years, leaving enforcement of the new
rules solely to the SEC — not making it open season for plaintiffs’ lawyers.”
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Here are four key takeaways from the conversation:
-
Disclosure mandates will make CEOs more accountable. The business
community has clearly embraced the concepts of ESG imperatives and
connecting those to strategy and stakeholder engagement. Companies have
stood up to talk internally and externally about their ESG commitments,
without any mandate. This is not something that a CEO can delegate — the
information presented in these disclosures will be part of the certification
process that all CEOs will encounter with each filing. CEOs will be held to
account for those disclosures and the progress against those disclosures.
-
Measuring and reporting ESG is hotly contested. A key issue is the
disclosure of the targets, measuring progress against those targets, and the
accountability associated with those targets. Where, within the whole
realm of reporting (e.g., annual report, financial statement, ESG report,
etc.) this should be published is also being hotly contested.
-
Scope 3 emissions are the areas of biggest political divide. Some think
it should be a minimum disclosure; others suggest that the complexity
associated with
it
undermines the original intent of disclosures to begin with.
-
Companies and other interested parties are invited to comment on the
proposed rules. Business is out in front of a true recognition and
commitment to advancing ESG principles. The rulemaking could have unintended
consequences if it’s not grounded in an understanding of the practicalities
of what we’re talking about. Bringing those issues to light through the
comment process is essential.
Check out this YouTube video to
hear more from Kelly Grier from this important conversation; and
read this SEC fact sheet
with more information. The regulations are open for public comment for 60 days
before the SEC can finalize and enforce them — which can take some time.
The increasing interest on mandating ESG is one of the reasons why CECP is
working to empower each CEO on their journey to refocus investor expectations
towards the long-term, including ESG strategy and disclosures.
Forward-looking companies will innovate, build awareness, and foster
understanding about how ESG is being integrated and measured throughout their
organizations.
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Daryl Brewster is CEO of Chief Executives for Corporate Purpose (CECP), where he spearheads the effort to engage a coalition of CEOs who believe that a company’s social strategy — how it engages with key stakeholders including employees, communities, investors, and customers — determines company success. He has 30+ years of corporate executive experience in the US and abroad ...
Published Mar 23, 2022 2pm EDT / 11am PDT / 6pm GMT / 7pm CET