Social Issues in the Spotlight: The Increasing Need to Improve Publicly-Held Companies’ CSR and ESG Disclosures

There is ever-increasing investor interest in corporate social responsibility (CSR) generally, and environmental social governance (ESG) in particular. Investors’ desires have triggered increased corporate ESG disclosures to indicate companies’ commitment to socially responsible behavior. As pressure for ESG-related disclosures continues to rise, there is increasing pressure on the SEC to support and mandate enhanced ESG disclosures. Notwithstanding many calls for mandatory ESG disclosures, the SEC has not implemented such a requirement. Instead, ESG disclosures are voluntary. Voluntary ESG disclosures are common, but to a large extent are marred by a lack of standardization in ESG data methodology. The increasing investor interest in ESG has led publicly held companies to take various approaches in framing their ESG disclosures. Many observers have asked the SEC to take a more active role with respect to ESG disclosures. Some observers call for mandatory ESG disclosures. To date, the SEC’s approach has been limited to providing guidance for companies electing to make ESG disclosures. This article analyzes the various ways in which the SEC could mandate or encourage better ESG disclosures. The article concludes that regardless of whether the SEC imposes mandatory disclosures or continues its voluntary approach, the SEC should adopt a safe harbor rule. A safe harbor rule would encourage ESG disclosures while at the same time limit, but not eliminate, the risk of liability for defective ESG-related disclosures