Thought Leadership

ESG Focus and Scrutiny Continues

Client Updates

Internal and external focus on Environmental, Social and Governance (“ESG”) aspects of a company’s operations took greater hold in 2021, a trend expected to continue in 2022. As ESG continues to grow in importance, companies as well as their boards of directors, investors, shareholders, lenders, customers, regulators, transaction counterparties and other stakeholders continue to struggle for a clear definition and basis for evaluating a company’s ESG statements and performance. Companies, particularly public companies, can look for a number of initiatives started in 2021, including those described below, to drive toward greater clarity and accountability on the ESG front, particularly on the climate and, as discussed in our Environmental Justice Update, the environmental justice fronts.

In 2021, the U.S. Securities and Exchange Commission (“SEC”) responded to increasing investor demand for climate and other ESG information from public companies with its announcement and implementation of an “all-agency approach.” On February 1, 2021, the SEC announced it had filled the new role of Senior Policy Advisor for Climate and ESG to advise the SEC on ESG matters and advance new ESG-related initiatives across the commission. Later that month, on February 24, 2021, the Acting Chair of the SEC directed the SEC’s Division of Corporate Finance to “enhance its focus on climate-related disclosures in public company filings.”1 This enhanced focus includes a review of how companies have responded to the 2010 SEC climate disclosure guidance, which is based on existing SEC disclosure requirements.  SEC’s ultimate objective is to update the 2010 guidance to account for post-2010 developments and put in place a comprehensive climate-related disclosure framework that will result in disclosures that are consistent, comparable and reliable. 

On March 3, 2021, the SEC’s Division of Examinations announced that its 2021 priorities would include an enhanced focus on climate and ESG-related risks, followed by an SEC announcement on March 4 regarding the establishment of a Climate and ESG Task Force with the SEC Division of Enforcement.  This task force, comprised of members from SEC headquarters and regional offices as well as enforcement specialized units, is charged with developing initiatives to identify ESG-related misconduct and potential violations, with an initial focus on material climate risk disclosure gaps or misstatements being made under the SEC’s existing disclosure rules.  On March 15, 2021, the SEC requested public input on the adequacy of climate disclosures from investors, registrants and other market participants. Through the end of 2021, more than 2,200 comments had been received by the SEC. 

On February 26, 2021, the SEC’s Office of Investor Education issued an Investor Bulletin to educate investors on ESG Funds, including questions to ask and considerations for investors in ESG Funds.  Subsequently, on April 9, 2021, the SEC Division of Examinations issued a Risk Alert based on examinations of investment advisers, registered investment companies, and private funds that offer ESG products and services, noting potentially misleading statements concerning, and a lack of or deficient, ESG investing policies and procedures, associated controls and compliance programs. The Risk Alert focused on the accuracy of disclosures, marketing claims, and other public statements. 

In September 2021, the SEC Division of Corporate Finance issued guidance regarding its review of filings for compliance with applicable climate change disclosure requirements, including a sample comment letter it issued to companies regarding their climate-related disclosure or the absence thereof.  The sample comment letter requested explanations for why disclosures in corporate sustainability reports were more expansive than SEC filings, supplemental climate-related disclosures, revisions to climate-related disclosures and information regarding carbon credits and offsets, among other climate-related topics.  The letters specifically highlighted both Risk Factors and Management’s Discussion and Analysis sections of filings.  A formal rule proposal on climate-related disclosures is expected in 2022.

While ESG reporting in the U.S. remains largely a voluntary concept, there is a growing and widespread attempt outside of the formal regulatory path to implement uniformity due to investor and other stakeholder needs to interpret and compare ESG programs, performance and data. The most common frameworks used in the energy sector for sustainability reporting are GRI and SASB, supplemented by the UN Sustainable Development Goals and the Task Force on Climate-related Financial Disclosures (“TCFD”). New standard-setting initiatives were announced in 2021. In October 2021, the Science Based Target initiative (SBTi), a collaboration among CDP (formerly the “Climate Disclosure Project”), the United Nations Global Compact, World Resources Institute (“WRI”) and the World Wide Fund for Nature (“WWF”), launched its Net-Zero Standard.  This first of its kind standard is intended to provide an independent and credible assessment of corporate net-zero target setting, although the methodology specific to the oil and gas sector is still under development.  In November 2021, the IFRS Foundation launched the International Sustainability Standards Board with the goal of developing. a comprehensive global baseline of sustainability disclosure standards.

The drive toward development of a consistent and standard format for ESG reporting, with quantifiable information to allow for comparability, including the use of metrics for climate data, is expected to continue in 2022 and beyond as is the interest of regulators, investors and other stakeholders in holding companies accountable on the ESG front.


Visit 2021 – Traditional Energy Rebounds and Increased Energy Transition, for the complete list of individual, detailed articles associated with this publication.

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