SMEs lag large firms in ESG disclosure and why it matters to Investors

Large firms disclose greenhouse gas (GHG) emissions at 2.5 times the rate smaller firms do, a report from The Conference Board has found.

In an examination of corporate disclosure and performance data of US publicly traded companies, including the Russell 3000, the S&P 500, and the S&P MidCap 400, the research organization found just 28% of S&P MidCap 400 companies disclose their GHG emissions, compared to 71% in the S&P 500.

“Companies that have not been addressing climate, diversity, and other key sustainability issues in their public-facing communications should take a fresh look at whether to do so,” said Thomas Singer, principal researcher at The Conference Board ESG Center and the report's lead author.

“More and more, these disclosures are expected by key stakeholders who can influence the company's reputation and bottom line. Smaller companies that have not yet prepared climate disclosures will inevitably face greater pressure to do so, not least because the SEC is expected to propose rules on climate disclosure early this year,” he added.

The findings come amid a period of growing concern from investors and regulators about climate disclosure.

The report confirmed that increasingly, lenders, regulators, and credit agencies expect companies to have their sustainability information verified by an external assurance company.

The findings revealed more than a third of S&P 500 companies corroborate at least some of their sustainability credentials through an external assurance company, compared to just 6% of S&P MidCap 400 companies.

A report published last month by the Financial Stability Oversight Council (FSOC) placed climate-related factors as a top risk to the US financial system.

The report encouraged financial regulators to promote consistent disclosures to allow investors and firms to take climate-related risks into account in their investment and lending decisions. Financial advisors and institutional investors will need to consider not only ESG investing, but also individual corporation’s stance particularly if their clients and constituents are interested in these factors before they invest.