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BOARD MEMO 2021

Forecasting climate change and sustainability efforts in 2021

Pamela Marcogliese

Pamela
Marcogliese

Partner, New York

Elizabeth Bieber

Elizabeth
Bieber

Counsel, New York

As we enter 2021 there are signs that expectations around climate change issues will begin to coalesce and investor and regulatory expectations may become more focused. In recent years, companies that made efforts to convey climate change information to investors invariably found that expectations lacked standardization, and worse, that significant investment in compliance with third-party standards or compliance with a ratings framework was not universally understood or appreciated. 

There have been early indications that the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD) are gaining traction with companies and investors alike. This is due in part to BlackRock’s endorsement of the frameworks in Larry Fink’s annual letter to CEOs at the beginning of 2020, and the expectation that companies provide public SASB- and TCFD-compliant information. Towards the end of 2020, SASB announced its merger with the International Integrated Reporting Council (IIRC), which by the middle of 2021 is expected to be called the Value Reporting Foundation. In addition, SASB, along with a group of international sustainability accounting standards organizations including IIRC, Global Reporting Initiative (GRI) and the Carbon Disclosure Project, announced a statement of intent to create a more comprehensive corporate reporting environment, in part by providing joint guidance on how their respective standards and frameworks are complementary or additive, with BlackRock calling for a convergence of standards into a unified reporting framework.

A recent report by the Governance & Accountability Institute revealed that 90 percent of S&P 500 and 65 percent of Russell 1000 companies published sustainability reports in 2019. Companies that have resisted providing climate and sustainability disclosure should expect that in 2021, investors and other stakeholders will be less persuaded by arguments attempting to justify the absence of sustainability-related information, absent a compelling justification.

Companies should also expect to see the SEC take on climate-related disclosure, as the incoming Biden administration has indicated that climate change will be one of the administration’s top priorities. While the current and prior SEC regimes have resisted prescribing disclosure and other regulations tied to climate change, it is expected to be an area of focus for the upcoming year.