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ESG and Financial Reporting

The importance of environmental, social, and governance (ESG) issues rises on the list of financial risks that investors would like to have more information about from the companies they follow. In the recent article Accounting for values and valuation, McKinsey interviewed a Board Member at SASB on why it is important to disclose sustainability information around ESG. SASB is actively working towards standardization of ESG disclosures and has just received an approval by XBRL US Domain Steering Committee for their new XBRL taxonomy. Once FASB approves adding that taxonomy to the XBRL Standard for SEC reporting, investors will be able to find relevant data in the digital XBRL reports such as 10-K filings.

We did a quick search of “ESG” keyword in 10-K filings for last 3 years using Screening tool of our XBRLAnalyst platform. There were only 4 companies in 2018, then 8 in 2019 and 41 companies in 2020 that reported some ESG information in their disclosures. The reported information was not very structured and would be difficult to use in quantitative comparative analysis. This will start changing once the new XBRL taxonomy for ESG reporting is approved by FASB.