Current state of play

When President Joe Biden came to office in 2021, the United States Securities and Exchange Commission (SEC), the agency in charge of regulating public companies, amid much fanfare released an ambitious environmental social and governance (ESG) agenda. The objective was to increase corporate transparency and accountability.

The SEC established the formation of a new taskforce focused on climate and ESG and created a leadership role to oversee the work. Alongside this, a list of hot ticket reporting requirements was created and added to the SEC rulemaking calendar; these included climate change related financial disclosures, corporate board diversity, human capital management, stock buybacks, CEO pay, disclosures by mining, oil, and gas companies for payment to governments, amendments to the shareholder proposal process and ESG disclosures for investment advisers and investment companies. The SEC was ready to charge full steam ahead.

Despite its ambitious agenda, the SEC has been hamstrung from implementing it. The agency has faced severe backlash from Republicans in Congress and in states where Republicans hold a majority along with a rightward leaning Supreme Court (See West Virginia V Environmental Protection Agency). Nevertheless, it has still pushed forward with the finalization of rules on climate change related financial disclosures, stock buybacks, and CEO pay. Though the future of some remains in limbo. For example, the climate disclosure, which itself needs a lot of improvement, faces legal challenges brought on energy companies, business groups, trade associations and Republican led states that have resulted in the agency pausing implementation.

Since the release of the climate disclosure rule, SEC Chair Gary Gensler has been dragged into Congress to testify on multiple occasions in what can be assumed to be just an effort to slow the agency down. The agency has also disbanded its climate and ESG taskforce and has removed ESG as a priority in 2024. And every other ESG related rule is now being carefully considered because of the high possibility that it will face similar backlash efforts.

As we head into the last few months of President Biden’s term, little progress is made and a lot remains to be done.

We continue to operate in the dark

In March of this year, Oxfam America released its Corporate Inequality Framework (CIF). To test the framework, we assessed 200 of the Fortune 500’s largest and most powerful companies. The biggest challenge while conducting this exercise was data availability and comparability. The extent of data missing from company reporting is staggering. Below is a snapshot of some of those key indicators.

Pillar 1: People

• Over 90% of the companies assessed do not report on implementation and/or progress of a living wage commitment.
• More than 80% of companies provide no disclosure of the use of part-time, contracted, or temporary employees.
• Less than 40% of companies provide information about whether they offer paid time off/sick leave/vacation. Only two-fifths (40%) of companies assessed report offering paid time off/sick leave/vacation to part-time, temporary or contracted workers.
• In over 80% of the cases, the companies assessed choose not to disclose information linked to the gender pay gap and this number goes up to 90% when it comes to pay gaps based on race.
• Indicators such as identifying, assessing, integrating, and acting on human rights risks and impacts were not thoroughly disclosed per data gathered by the Corporate Human Rights Benchmark.

Pillar 2: Power

• One-third of companies provide no information about employee ownership and over 64% of companies provide no information on whether their employees own equity through a broad-based employee ownership plan.
• Unsurprisingly less than 40% of companies report little information about coverage through collective bargaining agreements.

Pillar 3: Profits

• Many of the companies have allegedly used profits to pay their executives more rather than investing in the long-term. This is especially concerning since we know a large proportion of the profits are used to pay senior executives – our we data shows that CEO pay grew by 31% between 2018 and 2022, across the 186 companies for which we had data.
• It was challenging to assess how companies are sharing profits with different stakeholders, for instance workers. A large proportion of companies’ profits appear to be distributed to the largest shareholders; stock buybacks rose by 81% in 2021 and in 2022 were at a record level of $681 billion for the 200 companies assessed.
• Only around 13% of companies assessed provide information about transparency in their tax payments even though more disclose having a policy on responsible tax signifying a big gap between policy statements and business practice. There is also less clarity on the extent of the companies’ presence in tax havens.

Pillar 4: Planet

• There is a general lack of consistent, complete reporting on environmental and climate-related indicators.

The Way Forward

The current state of play makes it challenging to know how companies are performing across ESG indicators. Since the pandemic, it is becoming all the more evident that data on environmental and social indicators are important for assessing business related risks. Whether it be health and safety concerns of essential workers during the pandemic, constraints placed on workers, particularly women, due to care responsibilities, inability of farmers to adapt to climate smart technology because of lack of a living income, and the events in the US last summer where workers of all stripes fought for higher wages and better working conditions, all signal important risks that companies fail to report on. It is important for companies to disclose how they are performing amidst current, impending, and proposed regulations and/or legislation across jurisdictions such as the EU Corporate Sustainability Due Diligence Directive or the Uyghur Forced Labor Prevention Act in the United States.

Companies need to start disclosing more and better-quality information. Through Oxfam’s research it became increasingly evident that data comparability across companies, industries, sectors, etc. is not as easy as it looks. The data is not standardized and getting to a place where inferences can be made is cumbersome and expensive. Good, comparable, reliable, and standardized data can make all the difference. It can provide important insights about a companies’ business conduct. Better data can signal important reflections on the performance of the company that investors and other corporate stakeholders have a right to know.

Regulatory pressure on companies will be key but this is challenging amidst the current political environment in the US. For now, the only hope is impending legislation such as at the state level (for example bills on climate disclosure in California or that on deforestation in New York) and regulation in other jurisdictions where US companies are liable. Pressure from other stakeholders such as consumers and investors can play a big role in enhancing corporate transparency.