She said the regulator, along with companies and investors, needed to do more work on sustainability reporting including on whether, when, where, and how to provide disclosure and what precisely should be provided. She noted that this area had greater complexity than normal financial reporting because of issues such as the longer term horizon that might be needed when considering risks such as climate change and the broad range of topics that could pose risk to a company such as resource scarcity, corporate social responsibility, and good corporate citizenship.
Despite the complexity White said that in 2015, 75% of the S&P 500 companies published a sustainability or corporate responsibility report and over 90% of the world’s 250 largest companies did so. A number of organisations have also published useful guidelines or are developing sustainability disclosure frameworks and metrics White said. The GRI Sustainability Framework, for example, is now being widely used by companies to prepare their sustainability reports, she added.
White noted that currently, disclosure of sustainability information under SEC rules is being addressed by a combination of our materiality-based approach to disclosure, guidance on certain issues, and shareholder engagement on a range of sustainability topics, whether through direct dialogue with management or the shareholder proposal process. However, she accepted that many believe that the current materiality-based approach is not adequate and said is why the SEC was consulting on this in its recent Regulation S-K Concept Release and had asked for views from investors and others on whether the SEC should consider line-item disclosure on certain issues. The deadline for responses is the 21st July and White requested investors to share their perspectives and give the SEC input on whether changes were needed, and if so, what specifically should be changed.
White said, “The issue has our attention. But disclosure alone will not achieve the ultimate results many investors and other constituents are seeking.
“And so I urge investors who are seeking to alter corporate behaviour on sustainability to continue to use your stewardship and influence to bring about the strategic, supply chain and business model changes you think need to be made by companies to address the underlying risks and priorities. Encourage and prod companies to acknowledge sustainability objectives that are in line with what makes the most sense for their businesses, demand that they describe what they are doing to achieve those objectives and how they are doing against your expectations.
“We at the SEC will continue to closely monitor developments and to engage with investors and others as we review and enhance our current rules to fulfil our obligation to investors to provide them with the information they need to make investment and voting decisions in today’s world.”
White’s speech also noted that corporate governance in the US is not subject to a single code as in many other countries but is generally the domain of each of our fifty states under their corporate law. The SEC, she said, had an impact on corporate governance through its disclosure powers – requiring public companies to provide investors with the information they need to make informed investment and voting decisions. However, recent legislation – under the Sarbanes-Oxley Act and the Dodd-Frank Act has provided more country-wide rules on audit committee membership executive pay, for example. At the same time shareholder engagement, which she has encouraged, has increased White said.
The SEC chair also announced that there would be a recommendation by SEC staff for an amendment of an existing rule on board diversity. Currently the rule, adopted in 2009, requires companies to disclose whether, and if so, how their nominating committees consider diversity and, if they have a policy on diversity, how its effectiveness is assessed. However, the new amendment will require companies to include in their proxy statements more meaningful board diversity disclosures on their board members and nominees where that information is voluntarily self-reported by directors.