About the Panelists

The final panel session of the morning was focused on environmental, social, and governance (ESG) issues and sustainability reporting. The panel was moderated by Kristen Sullivan, U.S. sustainability and ESG services leader, Deloitte. Todd Castagno, executive director of research at Morgan Stanley; Marc Siegel, partner in Ernst & Young’s (EY) financial advisory services practice, and Sustainability Accounting Standards Board (SASB) member; and Amie Thuener, vice president, chief accounting officer, Alphabet, participated on the panel. The comments made by the panelists represent their own thoughts and views, and are not necessarily representative of their employers or affiliated institutions.


The final panel discussion covered developments in the area of environmental, social, and governance (ESG) issues, including climate change and sustainability reporting. “It feels like more has happened in the last six weeks than perhaps in the last six years,” Kristen Sullivan kicked off. “Following on the heels of the SEC proposal, the International Sustainability Standards Board issued two exposure drafts … and then just over the past couple of days, we saw the European Union, through EFRAG, the European Financial Reporting Advisory Group, issue the SRS, the European Sustainability Reporting Standards.” Sullivan believes that “organizations need to rapidly accelerate their preparedness to move towards more standardized, timely, and high-quality ESG disclosure.”

The SEC Proposal

“I think that companies were pleased that the SEC’s proposal leveraged the TCFD [Task Force on Climate-Related Financial Disclosures] framework,” Marc Siegel began. “Some companies use the TCFD framework today, so at least it wasn’t brand new … many companies were glad that at least the concept of a safe harbor was introduced for some of the trickier emission estimates.”

“But there has been pretty unanimous feedback about the difficulty with the financial statement footnote disclosures,” Siegel continued. “Those concerns include the judgments around what is or isn’t climate related, especially when those judgments will be included in a financial statement footnote next year, which would need to be fully audited with internal controls around financial reporting.”

“There’s also concern about the 1% threshold for those financial statement footnote disclosures, rather than the general materiality thought process. Some have also raised concerns that the SEC might have suggested that FASB do the work of deliberating financial statement footnote disclosure. … Lastly, there’s concern about just getting the quantitative information compiled in time for 10-K reporting. A lot of companies usually issue their sustainability report months after year end, and just getting that done all in time for a 10-K is something that people are raising concerns about.”

Sullivan asked what preparers thought about the proposal. “I think that the SEC climate proposal as well as all of the international proposals that you mentioned just continue to emphasize the need to invest in the resources to get ready for what’s inevitably coming,” Amie Thuener replied. “It’s going to be a big lift, and it’s obvious that there’s this increasing need for consistent, reliable ESG-related information. What I think it’s going to take is a match between the teams who are used to doing this sort of reporting—your financial reporting, your SEC teams who have that skill set in process and controls and getting a report out the door—with the content experts and your cross-functional teams who are out there doing the work. They know the industry, they know your company, and they know how to think about climate.”

“In this regard, I think many companies are thinking about an ‘ESG control-lership,’” Thuener continued. “At the highest level, what that team is really doing is bringing that finance rigor to a rapidly evolving ESG landscape.” Thuener said she finds it interesting that “there’s this very long-established system around financial reporting. You’ve got SOX [Sarbanes-Oxley Act of 2002], you’ve got COSO [Committee of Sponsoring Organizations of the Treadway Commission], you’ve got the PCAOB. We figured out how to get financial reporting out the door within the system. That system doesn’t exist for ESG reporting, yet we are sort of behaving as if it does. … we’re going to have to figure out how to make that system work, and we’re going to have to do it quickly.”

“I think there are significant operational challenges,” Thuener explained. “Especially with regard to timing, but also availability of data—some of this data is not something that that companies own.” She said that companies often have to go to external parties for this data and then decide how they can get comfortable enough to report it externally, as if it were their own.

Investors’ Perspectives

Castagno spoke to investors’ perspectives with the caveat that different investors have a different lens of the world. Nevertheless, he said, “I will put investors in two different camps: we have the sustainability-oriented investor … for that cohort, that there is ample support to finally getting some standardization.” He contrasted this with investors that don’t have a sustainability mandate per se. “I really do think there’s a knowledge gap,” he said, “and we need to do a better job getting investors to understand that the degree and magnitude of what’s being proposed.”

“In terms of materiality, most investors aren’t accountants; so, I think if you were to ask the average investor what is material, they’ll throw out the 5% threshold. I think a lot of people were very surprised to see a 1% threshold in terms of exposure at a line-item level,” Castagno continued. “We don’t see that in financial reporting or GAAP today. I think selfishly if you introduce a 1% [threshold], people are going to ask for that in other places.”

Castagno also said that some have expressed concern about “regulatory whiplash,” whether changes in the political leadership at the SEC might mean changes in the rules that would be costly for investors.

“One of the biggest challenges here is introducing comparability in terms of going back a couple of years and trying to present information that was not subject to the regime,” Sullivan said. She asked how investors are using ESG information today.

“You have a lot of different types of standards, a lot of different approaches to voluntary ESG data, and so how investors access that is very challenging,” replied Castagno. “You can go to a lot of major vendors, who often sell you a score or rating,” he said. “One of the things we’re doing at Morgan Stanley is building our own databases. … we have a team that’s collecting this information from the filings, and we’re having an analyst look at it and decide qualitatively what the indicators are. The feedback I’ve heard is, having it in the financial statements brings it to the level of prominence that fits the need.” Castagno added that people still have concerns about the controls over this information and the timeliness of reporting.

Sullivan asked how investor priorities have evolved and influenced preparers’ perspectives. “Just in the last couple of years, we saw some pretty severe weather events highlighting climate change, and investors are continuing to be interested in the threats and the risks to a company from climate change,” Thuener responded.

“There’s been some significant rise in the ‘S’ in ESG in the last couple of years, driven by a couple of big events,” Thuener continued. “One, COVID and the pandemic, which very quickly brought into the spotlight a company’s social practices—how do you engage with suppliers or treat workers in the midst of this unprecedented situation? And second, the racial equity issues that were brought to light have shifted the conversation around diversity, equity, and inclusion. I think because investors are recognizing the need for collective action on climate and social priorities, what we’re seeing is that they’re starting to leverage shareholder democracy to try to influence change. … What I think we’re seeing is this significant increase in the number of shareholder proposals for public companies, with a record number of ESG proposals up for vote.”

Thuener then noted that measuring corporate activity in the ESG area remains challenging for both preparers and investors. “Investors want to make sure that the companies are taking substantive actions and not just paying lip service,” she said. “Both corporates and investors agree that the evolution around ESG reporting is incredibly important to drive that accountability. And I think there’s a trade-off here between timely information … and accurate and reliable information. Because if you want the information with the 10-K, what preparers are telling the community is, ‘I can do that, but it’s going to have a lot of estimates.’” Thuener said if investors are willing to wait longer after year-end—though no one is sure exactly how long—they can get more accurate, more reliable data. “That’s a trade-off that we as a community are going to have to figure out.”

“To the point of concurrency in terms of timing,” Castagno added, “in my conversations, investors would priori-tize the quality of information versus the timeliness of it. Today, we process sustainability reports in June and September, and generally that’s not a distraction, it isn’t high-frequency data. Now the pushback to that is, and I think why some investors wanted it in the footnote, is they feel that it’s higher quality if it is in a footnote, that an auditor has looked at it harder, the attestation level is higher; so, I don’t know if that notion needs to be evolved or just proved.”

“What do investors have to do today?” Siegel asked rhetorically. “Investors need to scrape the PDF to get it into a spreadsheet so that they can begin to analyze it, and they’re doing that in the summer. So, somewhere between that level of difficulty for an investor to use it and having it in a footnote tagged in February—somewhere in between is probably the right space to be aiming for in the short run. But you’re absolutely right—there’s trade-offs to be figured out.”


“The ISSB could be interesting; it has already succeeded in one way in that it will reduce the number of voluntary standards setters in the ecosystem,” said Siegel. “The aspirational goal of the ISSB is to be the foundational building block of ESG disclosures, and they want to do that globally. That would mean that they would set ESG reporting standards across ESG topics that are designed for an investor audience. … But what they’re trying to do is take SASB and TCFD and put them together in a way to make ISSB standards. They’re doing that because the investor population has consistently told companies that SASB and TCFD are the most useful for their particular needs.”

“The ISSB has two EDs [exposure drafts] out now, one on climate specifically and one more general IAS-1-like ED,” Siegel continued. “When the final standards do come out from the ISSB, they hope that IOSCO [International Organization of Securities Commissions] regulators will endorse them, and if IOSCO endorses, then perhaps certain jurisdictions could mandate them or permit them. But even if not mandated, U.S. companies should probably keep an eye on them, because investors might ask companies to use them voluntarily like they do today with SASB and TCFD.”

Sullivan asked what the inception of the ISSB means for FASB going forward. “FASB can’t change their mandate and say, ‘we want to do more than just financial, we want to do sustainability, too.’ That would have to come from the FASB’s trustees and the SEC,” Siegel noted. “Having said that, the FASB absolutely has a role in trying to think about assets and liabilities, and expenses and revenues associated with these topics. … it’s not binary, it’s not like FASB never touches these issues—AROs [asset retirement obligations], environmental liabilities that have been incurred, payroll, stock comp that’s executive compensation. Where there’s intersection, FASB already deals with it.”

“I would agree that investors are probably going to start to demand some sort of standardization,” Castagno commented. “I’ve asked a lot of people, ‘Do you prefer our standards setting approach, versus a regulatory approach?’ And I think unanimously investors prefer a standards-setting approach. Again, it goes back to this regulatory whiplash fever that a future leadership could change the rules. I think investors are familiar with the standards-setting process, the deliberations that go on in that process, and so they’re certainly supportive.”

Mandates vs. Voluntary Disclosure

“We’re not starting from scratch; there’s a tremendous amount of voluntary reporting,” Sullivan noted. She then asked: “Where do you see voluntary disclosures that would fit outside of what might be mandated in regulatory filings?”

“I think in the long run, we’re going to end up in a space like financial reporting where voluntary and regulatory start to converge,” Thuener replied. “And this isn’t to say that we’re not going to have voluntary disclosure anymore, but I think we might think about it differently. We’re going to think about ‘is there a broader group than just investors, and what information do they need?’ I think companies will kind of put some thought to that, as well as what information beyond what is required is important to investors and other users to understand the company’s landscape.”

“Which is not that different than earnings calls that we have today, press releases, the kind of supplemental information that companies issue beyond the required financial reporting,” Thuener continued. “I think that, to the extent that ESG information is being incorporated into investment decisions, like capital allocation voting, companies are going to have to think about what’s material for purposes of financial filings. … It may be, for example, that some ESG information that companies previously voluntarily disclosed, especially like nonfinancial information around GHG [greenhouse gas], goals, targets, other KPIs [key performance indicators], is in fact deemed to be decision-useful.”

“I think that, no matter where it lands, we’re seeing the market demanding this information, which is why I think we’re going to continue to have both required and voluntary information,” Thuener added. “We’re going to have to, as companies, figure out what process and controls and systems we need in place to get that information out in a timely way, in a comparable way, that’s consistent and reliable.”

Governance and Assurance

Sullivan asked how panelists see governance and assurance evolving in the ESG area. “As it relates to prominence, and regulation, and compliance, there’s obviously a role that the Board has to play,” Thuener responded. “If you’re going to disclose something externally, you’d better have good governance around it, whether it’s required or not required. Are companies just investing more because they want to get ready for all this disclosure that’s coming? I think they are, and when I think about governance at the company level, I’m thinking about the controls and the process.”

“I think assurance is already a thing, even though it’s not mandated,” Siegel replied. “A Recency AQ report showed that more than half of the S&P 500 already get at least some of their ESG data assured. Granted that’s limited assurance mostly, but the direction of travel is clearly going up for voluntary assurance, irrespective of what gets finalized in the SEC proposal. The market seems to be demanding it. And audit committees are increasingly thinking about it, to ensure that the information going to the markets is robust and investor-ready.”

“There are a lot of players in this assurance verification landscape,” Sullivan said. “What are your thoughts on how the firms are preparing?”

Siegel replied: “We hear the question a lot—are the audit firms ready to do this? EY and Deloitte have been doing assurance on ESG information for many, many years already. It’s true that in the U.S., much of the ESG assurance is done by engineering or consulting firms. But that’s not true in other parts of the world. … In the U.S., it’s about scaling up and getting ready. And really there’s no one better at scaling up and training auditors than the accounting firms. … Given a transition period, I’m not really concerned that the firms won’t be able to enhance what they’re already doing in assurance to meet the upcoming demand.”

“What we hear about voluntary disclosure is there’s still a lack of compatibility,” Castagno added. “There’s this notion of greenwashing out there as well.” He said that investors think having some degree of assurance “would limit the spectrum of those compatibility and greenwashing issues … I think investors are demanding the accounting and auditing firms get into the ballgame and provide that service. … It seems like a natural evolution.”

Sullivan concluded by asking each panelist for their predictions for the rest of 2022:

“I think the SEC will try to finalize whatever it can to the climate proposal before the November elections,” Siegel said.

Castagno advised, “Get your investor relations folks involved in this … they’re the best people to have in the room.”

“From a preparer perspective, it’s just continuing to stay on top of what’s coming out,” said Thuener. “How are you getting ready? … How do you want to align yourself internally? And how do you work cross functionally to continue to meet the needs of your stakeholders?”

Kristen Sullivan. U.S. sustainability and ESG services leader, Deloitte.
Todd Castagno executive director of research at Morgan Stanley.
Marc Siegel partner in Ernst & Young’s (EY) financial advisory services practice, and Sustainability Accounting Standards Board (SASB) member.
Amie Thuener vice president, chief accounting officer, Alphabet, participated on the panel.