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The SEC Launches Task Force to Enforce ESG Reporting and Regulation

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The SEC Launches Task Force to Enforce ESG Reporting and Regulation

30-Second Summary:

  • Regulatory Update: The SEC has launched the Climate and ESG Task Force, which is designed to crack down on violations of ESG-related disclosure requirements.
  • Impact On Your Business: Though it could take months for the SEC to standardize the appropriate reporting frameworks, the launch of the task force opens the door to promising and positive change for ESG investors.
  • Next Steps: Since the SEC could push to standardize reporting for ESG investments sooner rather than later, it’s important for you to be proactive and take action now to ensure that you’re equipped to comply with the appropriate requirements.

Not sure what key metrics you should track for proper reporting? Aprio is here to help you develop an ESG strategy.

The full story:

On March 4, 2021, the U.S. Securities and Exchange Commission (SEC) announced the launch of an enforcement task force focused on climate and environmental, social and governance (ESG) matters.

Anyone who follows current events knows that ESG investing and climate-related issues are all over the news, and there seems to be unbounded demand for ESG investments as the amount of committed capital increases by the day. The most interesting part of the SEC’s announcement is the fact that it focuses on enforcement, not policy-setting.

Here’s what the launch of the task force means for ESG reporting and regulation, as well as the ESG arena in general.

What are the goals of the SEC’s task force?

In its announcement on the formation of the task force, the SEC noted:

“Consistent with increasing investor focus and reliance on climate and ESG-related disclosure and investment, the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct … The initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.”

Based on these statements, it’s clear that the SEC believes the current disclosure structure is insufficient at best and potentially misleading in certain situations. Though the SEC is likely causing some heartburn from public company management over current disclosure, this could usher in much-needed and overwhelmingly positive change.

The current climate (pun intended?) of ESG reporting is based on many different reporting frameworks, including the Sustainability Accounting Standards Board, the International Integrated Reporting Council, the Global Reporting Initiative, the Climate Disclosure Standards Board and the Carbon Disclosure Project.

Though these standard-setting groups are trying to align their frameworks, the accounting profession knows from experience that this could take decades and, as the Financial Accounting Standards Board and International Accounting Standards Board have discovered, the standards may not ever converge. If the SEC intends to focus on consistency, there could be a push to standardize reporting for SEC registrants, which likely will trickle down to non-SEC registrants as well.

The bottom line

The standardization of ESG reporting may lead to mass adoption by both public and private enterprises and could ultimately make ESG reporting as common as financial reporting.

Are you interested in breaking into the world of ESG and want to better understand your reporting requirements? Let Aprio help you develop an ESG strategy and put processes in place to track key metrics that can be used in ESG reporting.

Related Resources/Assets/Aprio.com articles/pages

If you have questions about ESG investing and want to start the conversation, please contact our team today.

Disclosures

Investment advisory services are offered by Aprio Wealth Management, LLC, a Securities and Exchange Commission Registered Investment Advisor.  Opinions expressed are as of the current date (March 19, 2021) and subject to change without notice. Aprio Wealth Management, LLC shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions contained herein or their use, which do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. This commentary is for informational purposes only and has not been tailored to suit any individual. References to specific securities or investment options should not be considered an offer to purchase or sell that specific investment.

This commentary contains certain forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.

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