Is ESG reporting mandatory or encouraged in your jurisdiction?
Environmental, Social, and Governance (ESG) reporting is an evolving landscape in the United States. In Oklahoma and Texas, ESG reporting is not mandatory but is encouraged to maintain transparency and foster stakeholder trust. However, companies based in Oklahoma and other regions should be aware that if they conduct business in other states, California for example, they may be subject to that state’s specific ESG regulations.
Effective in 2024, the Securities and Exchange Commission (SEC) has mandated that publicly traded companies disclose certain ESG factors in a Company’s annual report. As ESG becomes part of the disclosure requirements, the scope of financial statement audits has expanded to incorporate these elements as well. This highlights the critical impact of ESG on the financial results of an organisation – the cost of compliance, but also the impact of perception on the shareholder value.
Industries such as Oil & Gas, manufacturing, chemical blending, and others with a high environmental impact face increased pressure to diversify into renewable energy sources. The United States Congress has recognised the need for renewable energy and created renewable energy tax credits and incentives that companies can apply to their federal tax returns. Some of these credits can be generated or bought and sold like a commodity.
The social implications of ESG are far-reaching. Pressure from consumers to be good stewards plays a significant role in how a company positions their products. This has led to greater involvement in communities and improved transparency and equality in hiring and promoting employees.
As each of the other two aspects of ESG have evolved, the expectation of a company’s governance to uphold these values has also increased. More governing bodies are being held responsible for the actions of their company, requiring them to engage more deeply in the operations and broaden their understanding and education.
Although ESG reporting is mandatory only under certain conditions, the evolving nature of this practice is encouraging voluntary disclosure.
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