The SEC Is Reading Your Corporate Sustainability Report, Time For An ESG Comms Game Plan
Sustainability, Corporate Social Responsibility, Corporate Citizenship, and ESG Impact Reports – collectively, we will call these Corporate Sustainability Reports (CSRs) – are a communications tool rating agencies have referenced for decades. Traditionally, CSRs were cordoned from financial reporting, and content was often aimed at stakeholders beyond investors. For this reason, reports were not as closely relevant to regulators and escaped review – until recently.
As CSRs evolve to provide increasingly appealing content to investors, the Securities and Exchange Commission (SEC) is beginning to note differences in formal public disclosure and CSRs, calling out data and qualitative information provided in companies’ CSRs that weren’t included in their 10-Ks. The SEC sent comment letters to at least six companies on this topic in the last several months of 2022.
These letters make it clear that the SEC is carefully reading these reports. With new rules expected on cybersecurity and climate and a proposed rule around human capital management on the horizon, CSR reviews are likely to continue, and with potentially increased scrutiny.
What does this mean for CSRs and broader ESG Communications?
From the SEC’s perspective, that means that CSRs must be aligned with official public reporting and disclosure. SEC requests for an explanation of differences indicate increased visibility, and potential scrutiny, for CSRs and all ESG communications. At times, this can be limiting. There are inherent differences in tone and presentation between the two types of communication.
| Public Disclosures (10-K and Proxy Statement) | CSRs |
| Targets investors and must include information that is deemed material or useful to the reasonable investor. ESG is minimal, straightforward, and data focused offering only a highlight of development. | Targets a wider stakeholder audience including employees and customers and offers a storytelling opportunity providing more depth in ESG development. |
This puts ESG messaging in an interesting place. ESG communications are more than the investor-focused list of a few number-based highlights. ESG communications can serve to support employee recruitment and retention, provide an edge as a responsible supplier, or offer an opportunity to highlight a partnership or alignment with global efforts. If companies stick to a short list of key investor-focused data points, the opportunity to provide context to their ESG story is lost. For most organizations, ESG growth is a multifaceted and complex continuum that is continuously evolving. It’s a story well worth telling.
Roll ESG into corporate communications planning
CSRs and broader ESG messaging provide an additional opportunity to speak to each stakeholder audience sharing management of increasingly visible issues. The right strategic approach can align all messaging with intentional flexibility in varying communication channels to tell your ESG story in the right way.
Prepare now for 2023:
- Align. Connect your internal stakeholders. This could include your financial, investor relations, legal, and ESG teams. Create an ESG communications workstream that feeds into the Annual Report, Proxy Statement development, and the corporate communications calendar throughout the year.
- Plan early and leave space for TBD data. Q4 is a great time to begin the development of an ESG Recap for the year. Outreach to the entire ESG data network to contribute. If you have shared external pillars, goals, metrics, or major projects, the priority should be gathering data and providing updates around these disclosure areas. Do not let missing data points delay development. Even if you won’t have data until January, planning can begin well in advance as most data channels and programming are set by September. Subject matter experts typically have forecasts, and they can speak to them.
- Create an annual ESG Messaging Toolkit. Once the ESG Recap is set, the ESG communications workstream can build an ESG Messaging Toolkit. The Toolkit can set your organization’s narrative, talking points, key data points, and annual highlights. It should also clearly define the roles the 10-K, Proxy Statement, CSR, your website, and your social media platforms will play in communicating your ESG story to targeted audiences. Depending on your organization, the Toolkit could include practical resources like a communications calendar and standard imagery for the year.
| SPOTLIGHT: PENTAIR (NYSE: PNR)
By April 2022, Pentair had released its 10-K, Proxy, and CSR with each having tailored and complimentary ESG messaging supported by social media messages that stretch through the full year. While Pentair builds its strategy, this set of communications only serves to support growth. |
Building an ESG communications strategy that aligns with public disclosures, tells your development story, and weaves into your corporate communications strategy can be tricky. As with any strategic planning, considerations such as timing, carefully crafted language, and appeal to each stakeholder audience are key considerations to making an impact. This can offer challenges with varied perspectives within the workstream. If you’d like to discuss how to build your ESG Communications Team, create an ESG Messaging Toolkit, or set up an annual ESG communications calendar, let’s talk.