• There is no legal requirement to supply disclosures on ESG matters for public companies listed in the United States.
• Certain best practices can stand as a helpful guide as companies try to improve ESG disclosures.

There is significant interest in information relating to corporate sustainability and how companies are tackling and approaching applicable environmental, social, and governance (ESG) topics. That interest only continues to gain momentum, and the number of companies that have decided to publish annual sustainability or ESG reports has increased greatly in recent years.

There is no legal obligation to supply disclosures on ESG matters for public companies listed in the United States. As a practical matter, though, it can be anticipated that important stakeholders, such as investors, insurance companies, lenders, regulators, and others (including the general public), will increasingly look to companies’ disclosures to investigate whether those companies have adopted ESG agendas. Even without legal requirements to disclose, when a company does report, the information disclosed becomes subject to securities laws.

Policymakers have been debating in the U.S. and around the world how companies should go about disclosing ESG information to investors as well as other stakeholders. To the extent that ESG information is material under the U.S. federal securities laws, public companies are already obligated to include it in their filings with the Securities and Exchange Commission (SEC). Given the progress that companies have made with voluntary ESG reporting, even in the absence of required filing to a regulator or government body, many argue that regulatory requirements mandating ESG disclosures are not necessary.

To further advance the steps taken toward effective voluntary ESG disclosures, the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce has created best practices regarding standalone ESG reports. These best practices can help direct the creation of a broadly accepted approach to voluntary ESG reporting without the need for further regulatory mandates. Some disclosure variability is appropriate given the shifting relevance of ESG factors from industry to industry and company to company as well as the various differences in business models, geographies, customer bases, and other considerations. The following best practices can serve as a helpful guide for companies looking to improve their ESG disclosures:

• When plausible, ESG disclosures should center on a company’s risks and opportunities that have enough potential to influence the company’s long-term operational and financial performance within the context of its primary business function(s). The disclosures should explain the company’s approach to risk management and make the connection between the reported ESG topics and the company’s value creation strategy.
• Before preparing its ESG disclosures, a company should take into account the intended audience(s) of its reports and should tweak the tone and content appropriately, taking care to highlight information that would be most helpful for investors or other ESG-oriented stakeholders.
• Preparers of ESG reports should consider how best to coordinate with applicable departments and functions within the company to verify that all appropriate information is gathered and analyzed and that diverse perspectives and inputs are taken into account. When it comes to deciding whether information is material as a matter of law, however, that assessment should be made by a company’s legal department.
• In their ESG reports, companies should define technical terms in plain English and clarify any terms that do not have a globally accepted definition.
• It is critical that companies are allowed discretion in how they report and explain ESG information. Each company should have the flexibility to decide which ESG factors and related metrics are applicable and what disclosures are purposeful for its stakeholders rather than automatically adhering to what is recognized in various third-party frameworks and standards.
• Issuers preparing ESG reports should discuss why they selected the metrics and topics they eventually disclose, including why management thinks those metrics and topics are paramount to the company’s success.
• ESG information should be easy for users to find, such as through dedicated ESG disclosure web pages and links. ESG reports need not be incorporated into SEC filings to fulfill this objective, nor should ESG information be mandatory as part of an SEC filing if it is not material present under the Supreme Court’s well-established definition of materiality for federal securities law purposes.
• A company should consider including an explanation of the company’s internal review and audit processes or any external verification of the information that the company collected.