Corporate ESG Integration Not Optional

The new EU Taxonomy Regulation, 2020 O.J. (L 198) 13, mandates what financial market participants and operating companies must address if they wish to make claims of taxonomy compliance, with a scheme largely focused on disclosure, standardized subtopics within ESG, and alignment of practices with claims. Meanwhile, the global movement toward a uniform reporting framework remains uncertain despite the December 2020 merger of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC), and recent powerful endorsements of standards published by the Task Force on Climate-Related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI). In particular, the UK has announced its plans to adopt its own taxonomy and disclosure regulations, albeit also based on recommendations of the TCFD and the EU Taxonomy Regulation. In the United States, the Securities Exchange Commission (SEC) announced on March 4, 2021 the creation of a Climate and ESG Task Force within the Division of Enforcement, which will "develop initiatives to proactively identify ESG-related misconduct [and] … coordinate the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations."

In addition, the SEC continues to prioritize prosecuting unsupported ESG claims, while also promising to update its 2010 guidance to provide a more coherent framework for ESG disclosures — and is asking for public comment (until May 15).