by Gregg LaBar

June 23, 2023

ESG regulations, including for mandatory reporting, are probably inevitable, but the specifics are far from certain and we may be a long time from having one consistent, practical global standard. As best practices, voluntary standards and ratings evolve into laws and regulations, the roles in ESG and sustainability for corporate board members, investor relations officers (IROs), and financial and legal professionals are likely to become more important.

Those were a couple of the notable takeaways from an environmental, social and governance (ESG) session at the National Investor Relations Institute (NIRI) Annual Conference earlier this month in Chicago. The session titled “IROs in an ESG World: Find Your Voice and Your Purpose” was organized by my colleague Kellie Friery and I was the moderator. We had four highly experienced and accomplished panelists:

  • Ghita Alderman, associate director of ESG content with the National Association of Corporate Directors (NACD)
  • Tim Sedabres, executive vice president of finance and head of investor relations for Huntington National Bank
  • Brian Tomlinson, managing director of ESG at Ernst & Young
  • Ruth Venning, executive director of investor relations and ESG for Horizon Therapeutics

The primary regulations discussed during the session were the U.S. Securities and Exchange Commission’s proposed rule on climate-related disclosures for investors and the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD). The EU directive is expected to increase the number of reporting companies in the EU from 11,000 to more than 50,000, including more than 10,000 companies based outside of Europe, many of them U.S. companies.

While the SEC’s proposed climate change rule received some 14,000 comments, with the majority coming from critics and skeptics, CSRD has strong support from public officials and the general public across Europe and the corporate community has had much less influence over the directive. For more information on the differences between the two regulatory frameworks, see the Note at the bottom of this blog post.

“Anxiety around the regulations is pretty high right now, but they reflect a general feeling that we need more harmonization,” said E&Y’s Tomlinson, a U.K. native. As a result of new regulations related to CSRD, he said companies may need to put a more formal structure around ESG data and reporting, including the potential need for an “ESG controller” to work alongside a company’s financial controller.

NACD’s Alderman said corporate governance, the board’s understanding and oversight of ESG issues and the responsibility of management to guide the ESG strategy will probably determine how effective companies are in addressing specific environmental and social topics. Alderman acknowledged that ESG may remain “a hot political football” for quite some time, but most companies are likely to continue their ESG reporting journeys, in alignment with their boards, customers and other stakeholders.

Sedabres said Huntington currently takes a “minimalist approach” to ESG disclosure in the SEC-governed 10-K and 10-Q while perhaps “overdisclosing” in the ESG report. That approach could change for many companies if ESG reporting becomes mandatory. Companies will essentially have two choices: pull back on the ESG disclosures in their report or add a significant amount of documentation and verification for those disclosures.

Venning, who leads both investor relations and ESG at Horizon Therapeutics, said the additional requirements from the SEC rule and CSRD will be challenging for small- and mid-cap companies. “I think ESG reporting is here to stay, no matter how challenging it becomes,” she said. Her hope is that good ESG performance and reasonable, reliable reporting will continue to be “a positive differentiator” for companies and that not everyone will be resigned to just fulfilling complicated compliance obligations.

Separately, one ESG leader with a Fortune 500 global manufacturer told me that, while many of his peers and colleagues continue to worry about the SEC rule, CSRD is the regulatory framework most on his mind – because of its broad impact and the potential complexity as EU member nations must develop their own regulations to implement the directive, which carries deadlines for 2024, 2025 and 2028.

Tomlinson offered this sense of perspective on CSRD to the mostly U.S.-based attendees at the NIRI conference: CSRD’s impact could be nothing less than to “change how Europe makes its money.”

We learned so much from our panelists, audience questions and comments, and other ESG-related sessions at NIRI. Want to learn more about where all this is going, and what the leaders, fast followers and others are thinking and doing? Contact Gregg LaBar or Kelly Friery at Dix & Eaton.


Note: The primary differences between the SEC’s proposed climate disclosure rule and the European Union’s Corporate Sustainability Reporting Directive can be summarized as follows:

  • CSRD is based on 12 new European Sustainability Reporting Standards (ESRS) covering a wide range of ESG topics. The SEC rule is focused on only climate change (although the agency has said it is also considering human capital management and cybersecurity topics for possible future rulemaking).
  • CSRD is based on “double materiality,” which requires that companies report information necessary to understand how sustainability affects their business and the impact their business has on a range of sustainability matters. Given its investor focus, the SEC is using “financial materiality,” focusing on “risks that are reasonably likely to have a material impact on a company’s business, results of operations or financial condition.”
  • CSRD includes a mandatory assurance obligation for all reported sustainability information. The SEC rule does not have such a broad requirement and there has been discussion that the limited provisions around assurance may be further weakened or dropped altogether.