US SEC Seeks Public Comments on Modernization of Public Company Disclosures
On April 13, 2016 The Securities and Exchange Commission voted to issue a "Concept Release" seeking public content on the form and content of disclosures made by US public companies to improve the usefulness of disclosures, making them more "effective" to investors and other stakeholders in the capital markets.
All three of the SEC's Commissioners − Chair Mary Jo White, Commissioner Kara Stein, and Commissioner Michael S. Piwowar voted in favor of seeking public comments to improve public disclosure effectiveness and review the opportunity of public companies disclosing non-financial data to the capital markets.
Today, there are more than 14,000 public companies in the United States driving the world’s largest capital markets. Public company disclosure is critical in directing needed funds to organizations making a difference in the quality of our life through better disclosure that is transparency and accountability.
The Need for Public Companies to Disclose Non-Financial Information (Sustainability Information) to More Effectively Deal with Material Risk to Investors
One of the areas discussed within this US SEC Concept Release issued on April 13, 2016 is the additional disclosure of sustainability or “climate change” information that may be material to a public company’s disclosure to protect investors. See page 204.
Why Sustainability Reporting by Public Companies is Important?
President Obama declared in his final State of the Union Address to Congress that Climate Change/Global Warming is “the greatest threat to future generations” facing the United States. In Paris, late last year President Obama pledged to cut America’s emissions by as much as 28% below 2005 levels by 2025. More than 200 countries signed the Paris Agreement to deal with the global climate change crisis.
Capital markets disclosure of climate change risk and current sustainability efforts to mitigate this risk
To accomplish this great task -- trillions of dollars will be required from the capital markets to address this global crisis and create new, more effective energy sources and infrastructures to mitigate this global crisis. Climate Finance and Impact Investing are new finance communities on the rise to reward companies and organizations addressing climate change. To reward public companies pursuing sustainable efforts to address global warming and to create a new sustainable economy an effective non-financial information disclosure to support capital market funding is critical. New jobs and industries will be needed in partnership with efforts by government as we move to a more sustainable economy. Companies will need to disclosure energy usage and efforts to be more sustainable in using existing resources.
The capital markets can be realigned through innovation, investment and reward as we transition to a more sustainable economy. The industrial revolution is a perfect example from the past as governments and industries transitioned to address new technology change and new industrial production methods. The capital markets played a critical role in this transition.
Public company disclosure – at least on a voluntary basis -- will be needed to direct capital market funding to organizations “doing the right thing” and moving to sustainable economy to address climate change.
Using the SASB Standard by Public Companies for More Effective Non-Financial Disclosure / Sustainability Reporting
Using a consistent sustainability reporting standard/framework like the Sustainability Accounting Standards Board (SASB) is needed by public companies to help guide them in the right direction. Modifications will be needed -- but it’s a great first start. SASB has defined 79 industry sectors and possible KPIs that can be disclosed by public companies to address material issues of interest to investors. Investors in turn are asking for more of this disclosure to mitigate risk.
The IMA has formed a partnership with SASB recognizing the important role SASB can play in helping both public and private companies report non-financial information to the capital markets such as sustainability information/ corporate governance/ social indicators. Management accountants can play an important role in helping companies gather and report this information to the capital markets.
The US SEC Concept Release is an opportunity for the capital markets to recognize the importance of providing a “life boat” to public companies in addressing the coming global crisis related to climate change and allow the capital markets to do its magic without government mandates -- such as conflict minerals where “one-size” fits all concept. Public companies can use SASB and disclose these KPIs within their financial reporting process.
Also, if the United States plans on keeping its pledge to more than 200 other countries (as outlined in the Paris late last year) capital market disclosure will be needed and aggregated to show how both government and the capital markets are meeting this mandate to cut green house gas emissions targets.
Use of XBRL Data Format for More Effective Disclosure and Use of Sustainability Reported Information
In addition, the US SEC should allow companies reporting sustainability information – such as SASB – to use XBRL to make this disclosed information driving capital markets change more accessible, machine-readable and transparent to all stakeholders.
The US SEC EDGAR System is currently using XBRL for financial statement information disclosed by public companies. Sustainability reported information should also be allowed to use XBRL data tags so this information can also be compared for integrated reporting.
Putting it all together
It is clear climate change/global warming is a global crisis. To deal with this global crisis - public companies must begin to report how they are dealing with this issue and being more sustainable for future generations. The capital markets will need to reward those companies taking actions by providing capital and investment in support of organizations managing sustainability and developing new alternative energy technologies as we as a nation transition to a more sustainable economy – using new technologies and energy alternatives. Critical to this transparency is using disclosure technologies such as XBRL to enhance the opportunity to compare financial disclosure with sustainability disclosure for de facto integrated reporting.
Public Company Integrated Reporting (Reporting Financial and Non-Financial Information)
An integrated report by a public company is a concise communication about how an organization’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term to support a sustainable enterprise. Sustainable public companies will be critical in supporting a sustainable economy that will need to be supported by both the private sector and governments to deal with climate change and the effective management of limited resources for the better of the public interest.
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