Shifting Viewpoints on ESG and Potential Mandatory Disclosures

By: Robert Gilligan, RBFL Student Editor

For a long time, people believed that a corporation deciding to pursue environmental, social, and corporate governance (ESG) initiatives was a decision that necessarily involved divergence from the corporate mission of garnering value for shareholders. However, in recent years, this thinking has undergone a dramatic shift. Today, investors, executives, and consumers alike view a corporation’s commitment to ESG issues as a sign of long-term well-being.

A series of reports published in 2005 found a correlation between ESG initiatives and financial valuation. These reports sparked a trend in the investor community, and it is now common practice for shareholders to look beyond traditional financial statements and evaluate companies based on their stewardship of stakeholder resources. As of 2018, ESG investing was estimated at over $20 trillion in AUM or about a quarter of all professionally managed assets around the world. This shift in investment strategy is also reflected in the exponential growth of Sustainable Sector and ESG Consideration funds. Sustainable Sector funds are portfolios focused on investing in companies associated with the growing “green” economy or focused on sustainability themes within an existing sector. Since 2009, the number of Sustainable Sector funds has grown from 100 to 303. ESG Consideration funds are conventional funds that say the “consider” ESG factors. There are now 564 ESG Consideration funds in operation, up from just 81 in 2018.

As the importance of ESG issues has grown in the eyes of investors, naturally corporate directors and executives have begun to acknowledge the need to integrate ESG initiatives into their governance and operations. In fact, a 2017 poll suggested that 85 percent of directors and executives believe that ESG issues should be formally addressed within their companies. We have also seen a significant uptick in ESG reporting, with 86 percent of the S&P 500 publishing corporate reports on sustainability. However, some investors complain that corporate disclosures are often merely boilerplate and are of limited value to investors seeking to evaluate companies’ ESG risks. These investors have called for the SEC to enhance its disclosure requirements and for the U.S. Congress to enact new laws to mandate more ESG disclosures.

With the onset of the Biden administration, and the President’s nomination of Gary Gensler to chair the Securities and Exchange Commission, many commentators believe the establishment of standardized ESG reporting metrics is likely. Notably, President Biden has pledged to require public companies to disclose climate risks and the greenhouse gas emissions in their operations and supply chains. Moreover, Gary Gensler is widely expected to bring significant change to the SEC, including the implementation of rules based ESG disclosure requirements. Thus, ESG’s meteoric rise as an indicator of corporate value appears to have landed it a position amongst the Securities and Exchange Commission’s mandatory disclosures.


Jessica Strine et al., The Age of ESG, Harvard Law School Forum on Corporate Governance (March 9, 2020)


Jon Hale, The ESG Fund Universe is rapidly Expanding (Mar. 9, 2020)


George Kell, The Remarkable Rise of ESG, Forbes (July 11, 2018),


Bryan Williamson et al., Biden’s “Money Cop” to Shine a Light on ESG, Harvard Law School Forum on Corporate Governance (Mar. 2, 2021)


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