Updated October 12, 2023
ESG (Environmental Social Governance) disclosure regulations are dynamic and continue to evolve. Even the topic of “non-financial disclosure regulation” is a source of confusion for many companies attempting to develop ESG strategies.
In this guide, we shed some light on ESG disclosures, the applicable regulations, and tips for preparing for the future of ESG.
Table of Contents:
ESG disclosure refers to the process of publicly communicating and reporting ESG performance and impact. ESG disclosures are sometimes also referred to as ESG reports or sustainability reports.
Companies share ESG disclosures with stakeholders – investors, business partners, employees and consumers – in an effort to be transparent about their ESG priorities, goals and impact.
According to a 2022 Moore Global survey (PDF), 83% of the large businesses placing greater importance on ESG reported that this improved customer retention. Companies placing greater emphasis on ESG also reported seeing headcount grow more than twice as fast as those less committed.
Disclosures enable companies to communicate their impact with key stakeholders, so they can make informed decisions about who they invest in, who they work for, and who they purchase from.
No, ESG disclosure is currently not a regulatory requirement in the US. However, many moves are being made in that direction, most notably by the Securities and Exchange Commission (SEC).
Historically, the SEC has required companies to disclose their financial information. For example, companies are required to file both annual and quarterly reports. However, in 2022, the SEC announced that they would be working toward adopting ESG disclosure rules.
As part of the rulemaking process, the SEC requested public comment on climate disclosure to ensure “decision-useful information” for investment decisions that is consistent, comparable and reliable. These actions align with current policy trends that suggest a future where ESG disclosure is a requirement within the US. For now, companies should prepare by developing ESG strategies and commitments to ESG reporting.
Currently, Malaysia and Hong Kong are the only countries that require ESG disclosure reporting. The European Union (EU), United States, and Canada are all currently refining ESG reporting requirements based on public comments; the expected timeline for compliance requirements is 2024.
The Malaysia Code of Corporate Governance (MCCG) lead the way in 2000 and has been reviewed and updated four times, most recently in 2021. The Bursa Malaysia Sustainability Reporting Guidelines (PDF) apply to listed companies.
The Hong Kong Exchange (HKEx) has required ESG reporting since 2013.
Both HKEx and Bursa Malaysia exchanges use a "comply or explain" approach for ESG requirements. (For example, an acceptable non-compliance explanation would be if a particular standard was not relevant or material to the corporation.)
Companies with multinational operations need to stay abreast of ESG reporting requirements that may impact them today and in the future.
Although the SEC has been providing investors with financially material information about the environmental risks faced by public companies since the 1970s, a heightened awareness of accelerating climate risk in recent years has prompted the agency to provide its first official guidance on the topic in more than a decade. In March 2022 the agency issued proposed new rules for climate reporting.
The proposed new rules would require publicly traded companies to not only measure and report their annual greenhouse gas emissions (as well as those from activities up and down their value chains), but also to identify and describe their climate plans in terms of:
The timing of the new rules is still uncertain. But once they go into effect, the largest companies (i.e., “large, accelerated filers”) will likely have to begin reporting their emissions data in less than 12 months and provide a “limited assurance audit” in the following year.
With shifts happening, US ESG disclosure regulation is on the horizon. Organizations should be proactive in their planning to ensure they’re prepared to disclose ESG initiatives. Below are some tips businesses can use to get started.
Armanino can assist with data audits, risk assurance and regulation compliance. Contact our ESG consultants today for an assessment.
From risk assessments and framework selection to report guidance and independent assurance of data, our team can assist your ESG strategy and efforts.