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ESG: An issuer’s perspective |  Nasdaq


ESG, which is short for environmental, social and governance, represents one of the fastest growing investment segments in Europe and the United States, as socially conscious investors willing to “do what you have to,” direct their investments towards companies that seem to be doing more. to make the world a better place.

With Earth Day tomorrow, we wanted to look at data from a United States House survey from August 2021 for insights from issuers on ESG. It is important to note that this represents our analysis of the data, not Nasdaq’s view on ESG and climate disclosure rules recently proposed by the United States Securities and Exchange Commission (SEC).

Solving the ESG problem is new

ESG, being a relatively new form of investing style, raises new questions. First, there is no standardization of data required and little history to verify if it matters (to investors or the world).

Chart 1: Most companies view ESG as a subjective term

It is therefore difficult to agree on what is “good ESG” and what is not. And sometimes (like now, with the war in Ukraine), that can change. There is disagreement over what should be included, as well as whether E and S and G should be given equal importance. The survey data, however, shows companies’ “E” disclosures, ranging from energy to environment or emissions.

Figure 2: What topics do companies include in ESG reporting

ESG: An issuer’s perspective |  Nasdaq

In order to bring some consistency to the process, several groups have created ESG standards. Notably, the Chamber survey found that many companies report more than one of them, because the sum of the bars in Chart 3 adds up to more than 100%.

Chart 3: There are a number of ESG data standards, each with different questions and scoring systems

ESG: An issuer’s perspective |  Nasdaq

But standard setters aren’t the only ones asking companies ESG questions. Often shareholders or research analysts also have questions for companies. In fact, the survey showed that most companies have to complete an average of five different questionnaires each year, with some companies claiming to have completed many more.

Figure 4: Requests for ESG data come from various interested parties

ESG: An issuer’s perspective |  Nasdaq

A nudge from the SEC in 2010 helped improve ESG reporting

In 2010, the SEC provided guidance on reporting material environmental risks.

Since then, survey results seem to show that poke has helped. Overwhelmingly, reporting has increased, with nearly 60% of companies reporting more information today than in 2010.

Figure 5: Most companies report more ESG today than in 2010

ESG: An issuer’s perspective |  Nasdaq

However, the survey also shows that most companies disclose their ESG measures separately from their financial filings with the SEC.

Figure 6: Most companies report ESG separately from regulatory and financial reporting

ESG: An issuer’s perspective |  Nasdaq

The SEC recently proposed new “E” rules

More recently, the SEC proposed new, more specific rules that require companies to include climate-related information in annual reports (Form 10-K) and quarterly reports (Form 10-Q). The rules are based on the principles of the Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol (GHG).

For a good summary of the rules, see here. Some of the big changes are:

  • Climate-related risks and measures: Addition of potential impacts of significant climate risks to the risk section of the annual report and to the audited financial statements. This includes identifying and assessing fire and hurricane risk to properties and operations, as well as exposure to sea level rise, and additional financial information if the impact of line is greater than 1%. Financial disclosures should also comply with the Internal Control over Financial Reporting (ICFR).
  • Calculations and certification of emissions: All companies will be required to calculate direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions. Most companies will also be required to disclose value chain (Scope 3) emissions if they are material or part of a target or objective, which includes emissions from purchased raw materials, transportation and business travel – as well as downstream activities when customers use and dispose of products. Large companies will be required to have independent insurance on scope 1 and 2 emissions.

Implementation will be phased: first, the largest companies are expected to comply by FY2023. The last to join will be small companies reporting in FY2025.

Look forward

The SEC is currently accepting comments on its proposed rules for climate-related disclosures, and we look forward to reviewing comments from issuers. We’re conducting a new survey with the House on corporate views on the SEC’s proposal, and we’ll compare those results once they’re released.

As the ESG space evolves rapidly, it’s good to see companies and regulators making efforts.


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