The Securities and Exchange Commission (SEC) is reviewing whether sustainability reports need to be prepared and submitted for publicly-traded companies. On April 13, 2016 the SEC issued a document seeking public comment on several hundred topics, including disclosure of company information relating to sustainability. The due date for comments has passed, and they are currently being reviewed. Might the SEC require publicly-traded firms to report on environmental and social goals and achievements?

Historically, the SEC has required disclosure of information only if such information is important to the reasonable investor; i.e., material information. Material meaning important for the investor in making an investment decision. More recently, the SEC has noted that the growing importance of sustainability and public policy information in investors’ voting and investment decisions. Therefore, the SEC is debating whether the growing interest makes the information “material”, and they wish to receive feedback.

If the SEC makes the decision in the affirmative, it will need to define what specific information a company would need to disclose as material. There is current voluntary sustainability disclosure, but some information is, in some cases, not useful to investors.
The SEC has previously issued guidance relating to one related issue: climate change. “Guidance Regarding Disclosures Related to Climate Change” (February 8, 2010). This guidance contains several disclosure requirements:

• Costs of compliance relating to environmental issues (costs, fines, reputation)

• Relevant legal cases involving potential fines or other penalties

• Specific climate change factors that might make an investment risky

• Potential climate change effects on company’s financial condition. Examples include: decreased demand for goods that cause high GHG emissions, availability of critical raw materials and/or water, and reputational risks.

• Physical effects of climate change on company assets.
Voluntary sustainability reporting goes beyond this to also include health & safety records, use of renewable energy, and social/labor issues, such as working conditions, gender/race equality, relations with local community, and other human rights issues.

The SEC has received hundreds of comments on this issue, ranging from industry arguing that sustainability data is not material to the opposite from the environmental community. Complicating this is the wide range of voluntary sustainability platforms that many companies have been using, some more effective at communicating meaningful information compared to others. It is likely that the SEC will require publicly-traded companies to compile and report sustainability data, but limited in form to what is considered material and critical for potential investors to make informed choices and for readers to more easily compare data between similar companies.

CCES has the experts to help your firm develop a sustainability program, including collecting meaningful information to determine your benefits of reaching goals and reporting them, as well. Contact us today at 914-584-6720 or at karell@ccesworld.com.