On April 14, 2021, the U.S. Senate confirmed Gary Gensler, President Joe Biden’s nominee, to chair the U.S. Securities and Exchange Commission (SEC) until June 5, 2021. The Financial Industry Regulatory Authority (FINRA) issued a statement, in which the organization characterized Mr. Gensler as an advocate “for the interests of investors.” Investors and the SEC have expressed an interest in the reporting of environmental and social issues. Many spectators believe that under Gensler’s leadership, the SEC may implement a required disclosure of ESG issues.

What are ESG issues?

“ESG” stands for environmental, social and governance issues. While these factors may impact each industry differently, most ESG disclosures consist of climate change matters, community involvement and diversity and inclusion initiatives. Some companies already disclose this information in various formats, such as statements on their websites or entire sections in their 10-K reports. The SEC released several statements over the past few months hinting toward required disclosure of ESG issues.

On Feb. 24, 2021, Allison Lee, acting chair of the SEC, published a statement in which she directed the Division of Corporation Finance to “enhance its focus on climate-related disclosure in public company filings.” On March 11, 2021, John Coates, acting director of the Division of Corporation Finance issued a statement in which he addressed the considerations for adopting an ESG disclosure system. The SEC’s Asset Management Advisory Committee met on March 19 to discuss an ESG disclosure framework and the following week, the SEC launched a webpage to display all agency statements and developments relating to ESG issues. Accordingly, ESG disclosure has recently gained an increasing amount of traction.

The future of ESG disclosure

The Biden Administration has showed an interest in focusing on ESG issues. Hence, mandatory ESG disclosure may be on the horizon. However, the SEC has not released guidance on the disclosure framework. According to Mr. Coates’ statement, “there remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. Part of the difficulty is in the fact that ESG is at the same time very broad, touching every company in some manner, but also quite specific in that the ESG issues companies face can vary significantly based on their industry, geographic location and other factors.”

In the meantime, public companies should aim to keep track of all ESG initiatives. Sustainability practices, donating to community organizations and implementing diversity and inclusion initiatives are all ESG factors that may soon be reported.