The global focus on climate change, alongside pandemic challenges and social justice movements, which helped highlight social concerns, have helped drive sustainability activities to the top of the agenda across the corporate world. As BNY Mellon discovered in a recent survey, investor pressure on issuers echoes these societal changes. Consequently, issuers and investors are increasingly focused on the disclosure and engagement practices related to environmental, social, and governance (ESG) topics.
Our research finds that ESG considerations are rapidly becoming a core element of Investor Relations, enhancing IR teams’ practices for engaging with investors. As a result, IR teams that are just beginning to make ESG a standard part of their process can use our findings in two ways. First, we identify common disconnects to avoid. Second, we provide actionable insights on creating productive, informative ESG engagement (i.e., an approach for establishing and maintaining these focused relationships).
On the demand side, investors want increased ways to understand companies’ sustainability practices. They look for the disclosure of reliable data alongside engagement on key areas of focus, in order to integrate ESG considerations into their decisions. This confluence of investor demand and issuer communications in our research shines a light on additional potential disconnects. We also uncover valuable insights on what to disclose and when to disclose it (i.e., the specific data and information used to communicate ESG risks, activities and impacts).
Disconnects and Demands
Disconnect: Investors want more than what issuers are currently offering, but issuers think they are offering everything that’s being asked.
Disconnect: There is a shift in investor thinking from viewing ESG as a risk-mitigation exercise toward it being a driver of returns. Hence, issuers need to focus on and understand growing or changing investor demands.
Demand: Investors want more transparency on ESG topics, more quantitative (vs. qualitative) data and more consistency in reporting.
Demand: Investors want more focus on material issues and those with the greatest impact.
Demand: Up until now, there has been a strong focus on environmental issues but investors also want issuers to focus on social and governance issues in ESG reporting.
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The Proposed SEC Climate Disclosure Rule: A Comment from the U.S. Chamber of Commerce
More from: Evan Williams, Tom Quaadman, U.S. Chamber of Commerce
Tom Quaadman is Executive Vice President and Evan Williams is Director of the Center for Capital Markets Competitiveness, both at the U.S. Chamber of Commerce. This post is based on a comment letter submitted by the U.S. Chamber of Commerce to the U.S. Securities and Exchange Commission regarding the Proposed SEC Climate Disclosure Rule.
Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita; and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy – A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.
This post is based on a comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule by the U.S. Chamber of Commerce. Below is the text of a segment of the letter with minor adjustments to eliminate the correspondence-related parts.
The U.S. Chamber of Commerce appreciates the opportunity to comment on the proposed rules (the “Proposed Rules”) of the Securities and Exchange Commission (“SEC” or “Commission”) governing climate and the environment in Release No. 33-11042 (the “Proposing Release”). Combating climate change requires citizens, governments and businesses to work together. American businesses play a vital role in creating innovative solutions and reducing greenhouse gases (“GHGs”) to protect our planet. The SEC, working in coordination with other government agencies whose primary responsibility it is to protect the environment, also has a role to play to the extent climate risk implicates the SEC’s tripartite mission of investor protection, maintaining fair, orderly and efficient markets, and facilitating capital formation.
The Chamber believes that policy solutions addressing climate change should serve the goal of reducing emissions as much and as quickly as possible based on what the pace of innovation allows and the feasibility of implementing technical solutions at scale. The Chamber also believes that practical, flexible, predictable and durable market-based solutions and mechanisms are at the core of efforts to address climate risk and are reflected in the actions of the Chamber’s members. Promoting private sector innovation across industry sectors will be central to solving climate change.
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