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Why Should My Company Care about ESG Reporting?

Executive Resource
Learn about the development of environmental, social and governance (ESG) reporting and its importance for your company.
December 23, 2021

Environmental, social and governance concerns — ESG — have been influencing the investing world, with trillions of dollars already committed to “impact investing.” If advocates have their way, boards and CEOs will increasingly have to report on their ESG activities. Is this a public relations initiative or a regulatory reporting requirement?

Activists and investors have petitioned the SEC to make it a requirement.

How Did ESG Reporting Begin?

The start of the latest ESG movement was globally organized and investment-centric, with a top-down approach to persuading companies to doing the right thing. The United Nations led the way for a second time in 2006. They developed “Six Principles of Responsible Investing” (PRI) aimed at the investing community, which was a different focus from the 2000 Global Compact’s 10 Principles aimed at management.

The PRI Six Principles of Responsible Investing

  1. We will incorporate ESG issues into investment analysis and decision-making processes.
  2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
  3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  4. We will promote acceptance and implementation of the Principles within the investment industry.
  5. We will work together to enhance our effectiveness in implementing the Principles.
  6. We will each report on our activities and progress toward implementing the Principles.

Although the target was different, the underlying ESG principles from the United Nations were still based on the original 2000 Global Compact model. That compact promoted 10 principles grounded in four subject areas central to corporate social responsibility: human rights, labor, the environment and anti-corruption.

The United Nations Global Compact’s 10 Principles

Human Rights




Combined, these two United Nations frameworks have become the core principles of today’s ESG frameworks.

What’s Included in ESG Reporting?

As implied by its name, ESG accounting is concerned with measuring firm performance in three very different domains: environmental sustainability, social responsibility and corporate governance. The key measures used to document and report a company’s performance will differ significantly from one company to another, and more importantly, from traditional accounting measures focused on financial performance.

As of today, ESG reporting is not a regulatory requirement. The principles are voluntary and aspirational; therefore, companies provide these reports to satisfy external pressures and voluntary CEO commitment to the Board and stakeholders.

Examples of ESG Issues

Environmental issues

Social issues

Governance issues

What Is Required Now? Should We Expect More Explicit ESG Requirements in the Future?

The SEC has not adopted specific disclosure requirements applicable to environmental, social and governance issues. Today, such reporting relies on the concepts of applicability and materiality: Issues that are material to a company’s financial condition or results of operations must be disclosed. Similarly, ESG disclosures are required whenever they are necessary to prevent other financial statement disclosures from being materially incomplete or misleading and to inform investors’ proxy decisions.

For public companies, there are disclosure requirements that drive management to address disclosures related to environmental protection issues:

External parties, including institutional investors and activists, continue to express concerns with the lack of specific ESG reporting requirements, particularly due to the difficulty in making comparisons across companies. Therefore, several groups are vying for the authoritative position. The current landscape for ESG reporting has become more difficult to navigate as numerous companies have adopted environmental and sustainability disclosure frameworks, such as:

Thus far, GRI and SASB have been the most widely frameworks, with further alignment to other criteria based on specific subjects, like climate change and water management. As more and more companies issue ESG reports, disclosure is expanding from information that is financially material to the inclusion of idealistic metrics for sustainability and corporate social responsibility.

In the U.S., the reporting remains voluntary. Globally, investors in countries that have already made ESG reporting mandatory, such as the United Kingdom and Sweden, proclaim the benefits of validation and comparability. Although reporting may be required in select jurisdictions, standardization and validation will continue to evolve. Many organizations are being proactive in obtaining external validation and even publishing the auditor’s report.

What Should My Company Do Now?

Public companies in the U.S. should expect increasing pressure to publish ESG data, whether that pressure comes from investors or from regulators. Ten or 20 years ago, it might have been enough to demonstrate your company was not buying goods made with child labor; today’s investors and activists are looking at global contributions to climate change, preparation for sea level rise and perceived fairness of executive compensation, among other concerns. Easing into ESG reporting before it is required will arm companies with data for activist investors and equip them to satisfy future regulatory requirements if — or when —they are instituted.

Self-reported ESG information, without external validation, may not always be accepted. Third-party assurance provided by a CPA firm is perceived as more objective and reliable. In addition, an external firm with experience in ESG issues can provide your company with guidance on the most important issues to be examined, how to extract the right data from your existing systems and reports, and how to present the information in a clear, understandable and useful format.

If you’re interested in exploring ESG reporting for your company, either public or private, Weaver can assist. Find out more about current standards and the issues involved in environmental, social and governance reporting at

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