Recently I wrote about our soon-to-be-published study of how/if 113 publicly traded US companies report financial value/gains/benefit of sustainability in their 10-K and/or sustainability/ESG reports. We found that only 27% reported financial value/gains/benefit of sustainability in most recent 10-Ks, with only 34% doing so in their latest sustainability/ESG reports.
Why are these figures so low?
The answers aren’t surprising. Based on anecdotal information and conversations with TheCorporateCounsel.net’s John Jenkins, the main reasons are:
- There is no mandate to disclose most of sustainability values in financial statements, and
- Companies fear securities litigation and SEC enforcement for disclosing non-mandatory information.
New information from Advisory Board member Dan Goelzer may help ease the enforcement fear. According to Dan’s latest AuditUpdate newsletter:
“In 2021, the SEC and PCAOB brought a combined 67 actions involving financial reporting or auditor-related issues. In 2024, the combined total was 99 such actions – almost a 50 percent increase. The PCAOB accounted for most of this growth – total PCAOB enforcement actions rose from 19 in 2021 to 48 in 2024.
While PCAOB enforcement actions increased steadily over the four years [The Anti-Fraud Collaboration] studied, the SEC’s record was lumpier. In 2021, the SEC alleged 21 financial reporting violations–eleven cases in which it charged revenue recognition violations, nine cases in which it charged financial reporting disclosure violations, and one case involving an impairment issue. In 2022, total SEC actions rose to 43 (24 revenue recognition charges, 14 disclosure violations, four impairment cases, and one non-GAAP reporting violation). But, in 2024, SEC financial reporting cases were back to nearly the same level as in 2021 – 23 total cases (revenue recognition — 11, disclosure – 10, and impairment – 2).”
Note the single non-GAAP reporting violation since 2022 (non-GAAP reporting is how sustainability financial values/gains/benefits would most likely be disclosed in 10-Ks).
On the other hand – past experience is not necessarily an indicator of future performance, as they say. Dan also points out:
“Audit committees should not assume that a more business-friendly regulatory climate and a less aggressive enforcement philosophy at the SEC and PCAOB will result in reduced scrutiny of public company financial reporting. Despite year-to-year fluctuations, accounting and auditing enforcement are perennial SEC priorities. That focus may increase under the new SEC administration, since a back-to-basics approach to enforcement is likely to result in more, not fewer, accounting and financial disclosure cases. The same may be true of PCAOB actions against auditors, although the future direction of PCAOB enforcement is harder to predict because of uncertainty concerning both who will be leading the Board and because of the constitutional questions that overhang the PCAOB’s enforcement program.”
As with anything, each company makes their own assessment of how – or if – to disclose sustainability information. This is one data point sustainability professionals can add to the conversation.
Members can learn more about sustainability reporting here.
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