To disclose or not to disclose ESG: are ESG public disclosures even a choice anymore given the prevailing regulatory trends and institutional investors’ demands?

Reporter

Tim Gordon

Gilbert + Tobin, Sydney

tgordon@gtlaw.com.au

Session Co-Chairs

Rabel Akhund Akhund Forbes, Karachi
David Flechner Allen & Overy, New York City, New York

Panellists
Alexei Bonamin TozziniFreire Advogados, São Paulo
Patrick Schleiffer Lenz & Staehelin, Zürich
Mia Mokkila Borenius, Helsinki
Zamira Zapata Valdés Diageo, Miami, Florida

Thursday 3 November 2022

Introduction

The co-chairs introduced the purpose of the session, noting that pressure continues to mount on companies around the world to make more, and more precise, environmental, social and governance (ESG) disclosures. Major institutional investors are taking a principled approach towards companies that provide insufficient ESG disclosures and regulators around the world are increasingly making adequate annual ESG disclosures mandatory. The purpose of the session was to discuss emerging worldwide trends in ESG disclosure, as well as the related risks and opportunities.

The IBA’s ESG survey

The session then moved on to reflections by Patrick Schleiffer on the cross-border survey of ESG considerations conducted by the International Bar Association’s (IBA) Securities Law Committee and Capital Markets Forum. The survey provided a truly global snapshot, with responses received from leading firms from Argentina, Austria, Belgium, Brazil, Canada, China, Colombia, Denmark, Egypt, Finland, France, Germany, the Grand Duchy of Luxembourg, Greece, Hong Kong, India, Ireland, Italy, Japan, Lithuania, Mexico, the Netherlands, Nigeria, Pakistan, Peru, Poland, Singapore, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, the United Kingdom, the United States and Vietnam.

The survey addressed the following questions, and a lively discussion was had around each one, with both large degrees of commonality and interesting distinctions across jurisdictions:

• Are ESG disclosures mandatory in your jurisdiction?
• If ESG disclosures are required, is there a distinction between the type and nature of the entity required to make ESG disclosures? 
• In case there is no mandatory disclosure requirement, do you nevertheless find that corporates are voluntarily making ESG disclosures in your jurisdiction as a result of investor expectations?
• Are ESG disclosures triggered in the case of certain transactions only or are ESG disclosures required to be made on a continuous (annual) reporting basis, or both?
• What are the sanctions for false or misleading ESG disclosures? 
• Is there a specific emphasis on climate change related disclosures as part of the ESG disclosure regime? If so, how does your jurisdiction require entities to make specific climate change disclosures?
• In your view, has ESG disclosure regulation in your jurisdiction aided investor value creation or has it created a greater compliance burden for companies without creating investor value? Or does the answer lie somewhere in the middle?

The survey results will be published on the IBA's website.

The expected ESG trends

Following the reflection on the global state of play today, as described by the survey responses, a discussion on the expected future trends ensued, with the following aspects considered to be the most pressing:

• the development of (greater, more standardised) guidelines and other internal regulations;
• the promotion of sustainable development in the corporate world/capital markets;
• alignment with global climate-related disclosures;
• the increase in voluntary disclosures; and
• improvement in the quality of ESG information.

The discussions were wide ranging, reflecting the breadth and complexity of this fast-developing field. A long discussion was held regarding voluntary v mandatory disclosure and the risks that can attach to each. Mia Mokkila opened the substantive discussion addressing how European Union regulation has led the global effort to standardise a taxonomy and compliance framework for ESG disclosures.

Alexei Bonamin described the Brazilian experience, including how enforcement action has been considered regarding voluntary disclosures, while Rabel Akhund highlighted, by way of example, India’s mandated sustainability reporting for the top listed companies v the very different approach taken in Pakistan.

The panel agreed that everyone is embarking on a learning curve and what constitutes materiality and how this flows into financial v non-financial disclosure is still being refined. The panellists also agreed that governance and culture is where the policies become real. A comparative discussion then ensued regarding relevant initiatives, including taxonomy regulation and sustainably due diligence trends, with David Flechner describing the taxonomy discussions that are ongoing in the US and the state of play of the Securities and Exchange Commission’s (SEC) rule making and enforcement action. Zamira Zapata Valdes was able to provide a valuable in-house perspective, describing the processes and considerations that go into company disclosures.

The co-chairs summarised the discussion and the panellists all agreed that it will be an area of continued intense focus for lawyers, regulators and major companies.