2023 ESG Disclosures and Proxy Season Trends

Background

In 2023, the world looks quite different, with significant inflation and recessionary pressures, geo-political tensions, a divided Congress, and a rise in Environmental, Social, and Governance (ESG) activism. Are your 10-K disclosures going to look different? Will they include some of the developing trends and challenges to ensure these disclosures deliver the most clear and transparent messages to your investors and regulators? As calls for ESG continue to intensify, both the Securities and Exchange Commission (SEC) and investors are demonstrating a heightened focus on evolving ESG factors, including climate change, diversity, equity, inclusion, and supply chain management.

10-K Disclosure Trends

Companies are expanding their corporate governance disclosures to address emerging areas, such as ESG and corporate sustainability, including environmental sustainability (impact due to climate change), human capital management, corporate culture, and supply chain to address both social and governance aspects. While only a few companies have included climate-related disclosures in response to the SEC’s original 2010 climate change disclosure guidance, many more have started to take the 2022 version of the SEC’s climate-related disclosure proposal more seriously in the MD&A and risk factor section of the 10-K, in particular.

The ‘S’ and ‘G’ focus areas, including cybersecurity disclosures, now represent some of the more important risk factors, especially as many companies have and continue to pivot to remote/hybrid work models. Topics including Pay vs Performance disclosure requirements and non-GAAP disclosure continue to complicate matters as greater attention is placed on issuer reporting in key filings.

Proxy Season Trends

Companies registered with the SEC are busy preparing their proxy statements ahead of the required annual meetings so that shareholders can vote on routine and special matters put before them. Disruption caused by global events, rulemaking changes, and new disclosure requirements, including ESG topics, are likely to factor heavily in upcoming shareholder communications and the 2023 proxy season. Trends that started appearing last year, including independent board chairs, human rights, diversity, and climate change, continue to surface in shareholder proposals in the 2023 season. Gender pay disparity is another potential shareholder proposal tying in with the ‘Equity’ component of DEI, represented by the larger ‘S’ component of ESG.

Summary of Specific ESG Disclosure and Proxy Season Considerations

  • ESG Reporting and Strategy: Has your company benchmarked ESG reporting and strategy initiatives to further inform your ESG disclosures for the 2023 Proxy season?
  • Independent and Diverse Board / Oversight Responsibilities: Board diversity with respect to women and minorities serving as independent directors continue to be an important corporate governance matter attracting attention. Reviewing board oversight responsibilities with respect to climate change, board compensation, and DEI are being demanded by investor groups.
  • Environmental and Social Disclosures: Crafting an environmental and social narrative to engage with shareholders and investors will be important to disclose.
  • Director and Officer (D&O) Questionnaires: Consider updating your D&O questionnaires to reflect Nasdaq’s proposed “family member” definition change.
  • Human Capital Disclosures: Think about human capital disclosures, considering the recent SEC amendment to Regulation S-K and heightened investor interest on topics, including employee health and safety, remote work, business continuity, and succession planning.

How Centri Can Help

Has your company considered ESG reporting? Not sure where to start? Contact Centri. Our team of ESG experts offers a range of ESG services that are tailored to your needs at the moment and in the future. Whether your business has an ESG program in place or is in the process of developing an ESG strategy, our team will provide you with the guidance to confidently move forward with your ESG journey.

About Centri Business Consulting, LLC

Centri Business Consulting provides the highest quality advisory consulting services to its clients by being reliable and responsive to their needs. Centri provides companies with the expertise they need to meet their reporting demands. Centri specializes in financial reportinginternal controlstechnical accounting researchvaluationmergers & acquisitions, and tax, CFO and HR advisory services for companies of various sizes and industries. From complex technical accounting transactions to monthly financial reporting, our professionals can offer any organization the specialized expertise and multilayered skillsets to ensure the project is completed timely and accurately.

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