Top tech groups try to dilute ESG disclosure rules

Microsoft and Alphabet, two of the most popular companies with investors focused on environmental, social and governance issues, are trying to keep ESG disclosures out of regulatory filings for fear of legal risk.

The tech companies’ ESG positions, submitted to the US Securities and Exchange Commission in recent days, set up a battle with Pimco, Invesco and other large asset managers who want ESG information to be included in annual, 10-K regulatory filings. The SEC is planning to make the disclosures mandatory and is considering where they should be made.

Josh Zinner, chief executive of the Interfaith Center on Corporate Responsibility, which includes religious organizations and other ESG-minded investors, said such disclosures would create a “more level playing field and highlight these companies’ leadership”.

Microsoft and Alphabet, he said, “position themselves as sustainability leaders and they should certainly be supportive of mandatory disclosure on ESG matters, including in their regulatory filings where they would be accountable for the content of this information”.

The battle between asset managers and companies over ESG disclosure is expected to intensify in coming months. With global warming and human rights posing new risks for companies, the SEC has embarked on unprecedented disclosure rulemaking for the booming ESG sector.

In 2021, almost a third of global equity inflows have gone into ESG funds, Bank of America said in a June 1 report. Assets under management in ESG funds hit a record $1.4tn in April, more than double the level from a year ago and growing at nearly 3 times the rate of non-ESG assets, the bank said.

Microsoft and Alphabet have benefited from this surge. Microsoft is the most widely held company in US ESG funds, Bank of America said. Alphabet is among the top 10 most popular ESG companies and is held in almost half of all US ESG funds, BoA said.

Alphabet joined other technology companies on an SEC letter last week that recommended ESG disclosures “be furnished via separate climate reporting to the SEC”.

“Given that climate disclosures rely on estimates and assumptions that involve inherent uncertainty, it is important not to subject companies to undue liability, including from private parties,” the companies said.

If companies are worried about getting sued, it could hurt the SEC’s overall goal of providing more ESG data to the market, said Patrick Flynn, vice-president for sustainability at Salesforce, one of the signatories to the letter. “It’s a new process for companies to go through, and they’ll need to establish new procedures. Allowing for some sort of safe harbour from liability . . . [allows] companies to push in willingly and not just do the bare minimum.”

In a statement, Microsoft said its SEC letter was not intended to imply that climate disclosures stay out of SEC filings entirely. It said its cycle for compiling and verifying climate data might not align with the year-end financial statements.

While it will continue to provide ESG disclosures outside of SEC filings, Microsoft said “we believe climate disclosures in SEC filings should be limited to information that is material to an investment or voting decision with respect to the company”.

Alphabet declined to comment.

“While it’s great to see corporate ESG leaders advocating for the SEC to adopt climate disclosure standards, we disagree with their assertion that these disclosures should fall outside current standard SEC filings such as the 10-K, 10-Q or proxy statement,” said Molly Betournay, director of shareholder advocacy at Clean Yield Asset Management, which has $450m of assets under management. “Standard climate reporting should be included regular SEC filings.”