Oil and gas companies in the US are becoming more transparent around climate-related activities by voluntarily disclosing information about their environmental, social and governance (ESG) performance, a recent study by EY has found.

According to the report, 80% of companies in the US have made disclosures about their scope 1 and scope 2 greenhouse gas (GHG) emissions so far in 2024. This figure was 72% for 2023, and 64% for 2021. Interestingly, a number of small corporations not yet required by law to do so have also voluntarily made ESG-related disclosures.

This approach follows a similar trend in recent years by global businesses investing more in their ESG-related compliance. There are multiple reasons for this. The obvious one is, of course, that corporations do not want to break the law.

But it’s not just about rules and the regulators. There is also a growing desire among large international corporations to align themselves with how investors and other stakeholders think and behave on matters related to ESG.

Businesses around the world are starting to understand there is a direct link between their performance on the ESG front, and their market value. This is partly because more and more investors are keen to be sure about investing ethically. In other words, they are reluctant to put their money in a business that doesn’t care about the environment, its people and the way it’s run. As reported by ICAEW: “Recent studies have consistently highlighted that firms that perform strongly across all three factors of ESG outperform the market and generate longer-term value.”

These are encouraging signs, both for society and the environment. What’s interesting is that some of the key factors, such a profitability and ESG-related compliance, are increasingly becoming interlinked.

“Recent studies have consistently highlighted that firms that perform strongly across all three factors of ESG outperform the market and generate longer-term value.”

ICAEW

The disclosure of ESG-related information by corporations is targeted at two sets of audiences. The first group who wants this information are the national and regional regulators, the governments, environmental agencies, lawmakers and so on. These bodies are authorized to and responsible for ensuring that corporations follow the rules. These rules are wide-ranging, and may differ from one country or region to another.

For example in the US, the SEC is introducing and implementing a number of rules which require companies to share data on “financial impacts from severe weather events, carbon offsets, GHG emissions metrics, governance oversight of climate risks, and climate risk management strategies,” according to reports. It would be a terrible idea to ignore these rules, the report warns, as “failure to comply could lead to legal consequences, including fines and legal proceedings by the SEC.”

And there seems to be a similar trend elsewhere in the world, with ESG-related rules being introduced and implemented throughout 2024. In the UK, the Climate-Related Financial Disclosure Regulation is gaining momentum too. It requires UK-based companies to disclose data and information on different aspects of climate related risks, including it’s management, strategy, risk management and targets and metrics, as reported by Moore Kingston Smith. In the EU, corporations have already started disclosing and sharing information under the Corporate Sustainability Reporting Directive (CSRD).

ESG continues to be a politically divisive topic in countries such as the US. But, as people around the world become more aware of the climate change crisis, pressure is mounting on governments and regulators to bring in tougher regulations against large global corporations.

Ethical behavior

So far, corporations around the world seem to have responded positively to calls by the regulators. But is it just the grip of law that’s forcing businesses to behave ethically? There is evidence to suggest corporations might also have more ‘profitable’ reasons for acting responsibly. As sustainability specialist Kushboo Singhania argues: “ESG considerations not only serve as markers of responsible corporate behavior but also play a pivotal role in shaping long-term sustainability strategies and enhancing stakeholder trust.”

“ESG considerations play a pivotal role in shaping long-term sustainability strategies and enhancing stakeholder trust.”

Kushboo Singhania, sustainability specialist

There are a number of ways in which corporations can benefit from ESG compliance. One study from 2019 has summarized some of these benefits. According to the report, one of the key benefits of ESG compliance is that corporations win the trust of governments and regulators. This in return allows corporations smoother and more regular access to new and existing markets.

It also helps in obtaining licences and approvals. Other benefits of ESG compliance include operational cost reduction, reduced regulatory and legal interventions, an improvement in employee productivity and, lastly, investment in more promising and sustainable opportunities.

In summary, ESG-compliance is no longer just another page from the rule book for businesses. Instead, it is seen as an opportunity to gain trust, reduce costs, ensure sustainability and increase profitability in the long run. And if such an approach helps the environment and the society in general then it may not be a bad thing.