Many companies aren't adequately integrating environmental, social and governance (ESG) issues with new SEC requirements, and that's causing widespread SEC disclosure noncompliance, according to recent research by CSR Insight LLC.
The study, billed as the first independent, comprehensive technical study of how the SEC regime applies to ESG issues found that:
More than a dozen SEC requirements potentially apply, for 10-K, 10-Q, 8-K, and other corporate SEC filings, including narrative disclosure and financial statement requirements, books and records requirements, and management certification requirements.
There's a substantial likelihood of widespread corporate noncompliance with one or more of these SEC requirements.
CSR Insight, which is an independent consultancy specializing in analysis of SEC and global financial regulation, global financial regulatory policy, ESG reporting frameworks, ESG capital market issues, and international corporate governance standards, concluded that the problem is this:
Companies aren't properly integrating the full range of ESG issues and risks and the associated additional SEC requirements into ERM, GRC, risk management, performance management and financial information systems. Of course, without this type of integration, it's impossible to adequately identify, evaluate, measure, manage and monitor these complex, escalating issues and risks, including their nature, magnitude, probability, timing and business and operating model impacts.
Today's businesses need to do better. As CSR Insight points out, SEC disclosure noncompliance not only undermines investor protection and efficient capital formation, but also can have potentially significant ripple or knock-on effects for other market participants and global capital market activity. It can undermine corporate transactions, such as M&A, IPOs and secondary capital raises and also trigger auditor liabilities and potential violations under the current SEC regime.