After Years of Advocacy, the Fight for ESG Disclosure Forges Ahead

By Robert Stewart

Civil rights icon and federal judge Damon Keith (now deceased) once stated, “Democracy dies in the dark.” In today’s business climate and after years of deregulation many corporations “operate in the dark” and their financials fail to disclose vital information that is important to investors and the public at large.

In efforts to bring about greater corporate accountability, in 2018 working in collaboration with several investor and advocacy groups, Public Citizen drafted a petition for a rulemaking at the Securities and Exchange Commission (SEC) that would create a standard disclosure framework on all environmental, social and governance (ESG) issues for public companies. The petition called on the agency to shed light on how public companies deal with issues such as human capital management, diversity, climate change, taxes, human rights, gender pay ratios, and political spending.

In the wake of extreme economic inequality, civil unrest, racial injustice, and mass suffering the public is calling for structural change and a deepened democracy. However, far too often corporations have been impediments to progress rather than embracing it. Corporate interests have served as vehicles for dark money in politics which affects who is in power and what policies become law at the expense of the will of the people.

ESG disclosures are important because disclosure bring about accountability. According to a study from Oxford University, 80% of typical investors value and take into consideration ESG information when making investment decisions. What’s more, in response to recent developments of racial injustice, gender discrimination, corporate profit shifting to tax havens, unsustainable climate practices, and the eroding of workers’ rights, there is a populist movement to hold corporations accountable who are bad actors.

The Biden Administration has made it a priority to address income inequality and racial injustice but without information from companies about diversity in their workforce and CEO to worker pay ratios, it is impossible to know if they are living up to those commitments. Beyond the straightforward connections to pay and a diverse workforce, other components of ESG disclosure are also critical to addressing the racial justice crisis in America. The climate crisis is disproportionately affecting communities of color, therefore better understanding how corporations are contributing to the crisis is a racial justice issue as well as an environmental one. Information about what politicians a company supports is also essential since many advance policies that would harm Black and Brown communities. ESG disclosure is only a small piece needed to address this crisis, but it is essential for accountability.

With these strong calls for transformation, it is essential that the Biden Administration meets the urgent needs of this moment. So far, recent changes at the SEC signal a strong start. In terms of personnel, the agency is in strong, investor- focused hands with acting SEC Chair Allison Lee, senior policy advisor for climate and ESG Satyam Khanna, acting director of the SEC’s Division of Corporation Finance John Coates, and nominee for Chair Gary Gensler. The agency has signaled important movement on ESG disclosure in recent weeks. Additionally, in his confirmation hearing Gensler expressed his support of political spending disclosures. Acting Chair Lee directed staff to review and update the 2010 climate guidance and said that the agency should review its disclosure requirements on diversity. What’s even more promising is that Coates recently went on the record stating that the agency should help create an ESG disclosure system.

These promising developments indicate that the long-fought efforts for ESG disclosure from advocacy groups and investors surely have a chance of coming to fruition. It’s up to the Biden Administration to ensure that they do.