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US Securities and Exchange Commission

Accounting Profession Says SEC ESG Rulemaking Should Leverage Work Done By Private Standard-Setters

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

· 6 minute read

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

· 6 minute read

Judging by comment letters filed with the SEC, the accounting profession seems to be coalescing around an environmental, social, and governance (ESG) reporting framework that builds on work that has already been done by private standard-setting bodies, The SEC should also cooperate with the IFRS Foundation on its efforts to set a global set of sustainability standards.

This comes as many public companies are already using private-sector disclosure framework and standards voluntarily. In the United States, large asset managers have called on companies to use standards set by the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board. SASB is now under the rubric of the Value Reporting Foundation.

The IFRS Foundation also has work underway to potentially set up the International Sustainability Standards Board (ISSB), which the SEC supports and is working as a technical adviser as part of the International Organization of Securities Commission (IOSCO).

The IFRS Foundation has also been looking at work that has already been done by standard-setters such as the SASB and the Global Reporting Initiative (GRI). Initially, regulators around the world, including the SEC, are focusing more on climate change aspect of ESG.

“To achieve its objectives, we believe the Commission should incorporate, endorse or otherwise support a globally accepted ESG reporting system that would set baseline requirements,” KPMG LLP wrote. “We support a ‘building blocks approach’ that would allow national and regional jurisdictions to build on that global baseline to set supplemental standards that serve their specific jurisdictional needs.”

Other Big Four accounting firms, the AICPA, and its affiliate the Center for Audit Quality (CAQ) largely agreed in their comment letters in response to a mid-March request for comment by then-SEC Acting Chair Allison Herren Lee.

As of July 1, 2021, there were 593 unique comment letters and 5,730 form letters falling into four different types. The form letters all want more standardized ESG reporting, especially on matters related to climate change.

“Private sector efforts to establish ESG disclosure standards have contributed to the quality, transparency, relevance, and comparability of ESG disclosures,” Deloitte & Touche LLP noted. “However, in some cases they also have resulted in duplication and/or parallel reporting, and therefore have not resulted in the level of consistency in reporting across companies that would likely result from a single set of standards.”

In addition, Deloitte noted that there has been increasing frustration in the market with multiple reporting standards and multiple stakeholder requests for information that require some companies to report some ESG-related information several times and in different formats. Thus, the firm said that it supports efforts to form the ISSB and the SEC’s role through the IOSCO’s Technical Expert Group.

“We encourage the SEC to remain active in these discussions to help shape global standards in this area so that the Commission does not lose an important opportunity to align with global standards at the outset,” Deloitte said.

ESG Assurance

The AICPA and the CAQ also touched upon assurance of ESG disclosures.

“Key components contributing to the trust in, and effectiveness of, our financial reporting system include management responsibility for the financial statements and controls over reporting, along with assurance provided by licensed professionals who are held accountable to core values of integrity, objectivity and independence, who are required to follow comprehensive standards of practice and are subject to independent inspection,” the AICPA said. “Accordingly, we support the SEC’s consideration of assurance over climate-related disclosures as well.”

The CAQ pointed to the European Union’s proposal for a Corporate Sustainability Reporting Directive (CSRD) that would initially require companies there to obtain limited assurance on reported sustainability information with an option to move towards reasonable assurance in the future.

While other service-providers can provide assurance, the CAQ noted that public company auditors offer increased investor protection because they are required to be independent of the companies they audit following applicable independence standards for attest services.

Auditors also have access to specialists that have expertise in most areas of ESG information, greenhouse gas emissions. Moreover, among other benefits, auditors are experienced in reporting on on compliance with various established standards and frameworks.

Corporations’ View

In the meantime, business groups and many of the individual companies that wrote comment letters emphasized principles-based disclosure requirements rooted in the concept of materiality in the SEC’s disclosure requirements.

For example, for climate-related disclosures, leading tech companies such as Alphabet Inc., Inc., Autodesk, Inc., eBay Inc., Facebook, Inc. Intel Corp.,, Inc. said a principles-based framework will provide a basis for companies to report the most relevant information for their industry and their stakeholders without having to update the framework.

However, the companies said that the disclosures should not be subject to a filing requirement under the securities laws but be furnished via separate climate reporting to the SEC.


Walmart Inc., which also said that ESG reporting should continue to be reported outside regulatory filings, said the SEC should play a role in promoting a consistent disclosure by fostering the development of a set of generally accepted accounting principles for ESG, including climate change—or GAAP for ESG.

“The financial reporting field has taken 80 years to mature to where it is today: detailed standards and interpretations informed by experience, a robust body of practice, and processes to assure accuracy and integrity,” Walmart wrote. “We believe ESG reporting will mature far more quickly but needs to follow a similar path.”

In its view, a FASB-like model is ideal. Over time, existing standard-setting bodies could become good candidates for designation as a FASB-like commission-approved standard-setting body on ESG topics and mentioned the TCFD, CDP, and the SASB.

Thus, the SEC could propose rules to spur the development of a GAAP for ESG, but Walmart was quick to emphasize again that the rule should not be mandated for commission filings.

SEC Commissioner: Not So Fast

Separately, SEC Commissioner Hester Peirce, in a July 1 letter to the IFRS Foundation, urged it not to wade into sustainability standard-setting.

“We do not have perfectly converged global financial reporting standards,” she wrote. “A single set of sustainability standards is an even more difficult task given the uncertainties around the scope of issues such standards should cover and their purpose, and the difficulty in reducing sustainability matters to objective, easily comparable, broadly applicable metrics.”


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