Sustainability Reports Rapidly Becoming Expected Disclosure

VIEW AS PDF

By Don Carpenter, MSAcc/CPA

Knowledgeable investors are quite accustomed to the standard reporting cycle of public companies, culminating in the Annual Report (Form 10-K) followed closely thereafter by the Proxy Statement. These reports offer insight into the financial viability and corporate governance of organizations. Although not part of the Securities and Exchange Commission (SEC) disclosure regime, the Sustainability Report is taking its place in what is rapidly becoming a triumvirate of reports that guide investors in their portfolio allocation.

The Sustainability Report is also referred to as the ESG disclosure because material Environmental, Social and Governance matters are reported. As such issues as climate change, fair trade and income inequality have moved to the forefront of business issues, more and more fund managers and individual investors are taking these matters into consideration when making investment decisions. This is reflected in the growing number of companies issuing annual sustainability reports.

A recent survey by the Governance & Accountability Institute, Inc. found that 90% of the S&P 500 issued sustainability reports in 2019 compared to only 20% in 2011.

In 2020, the SEC Investor Advisory Committee weighed in with several conceptual recommendations that could be viewed as the first step to bringing this report under the auspices of the Commission. The committee’s review of sustainability reporting was grounded in its growing importance to investors. The committee pointed out that passivity with regard to these disclosures heightens the risk that either capital flows begin to favor overseas markets and/or U.S. markets fail to take the lead in shaping ESG reporting standards.

To counter these concerns, the committee made several recommendations.

Investors Require Reliable, Material ESG Information Upon Which to Base Investment and Voting Decisions: As companies vie for capital, inconsistent or inaccurate data hampers investment decisions. Currently, sustainability reporting tends to follow the guidelines outlined by three distinct reporting frameworks. The Global Reporting Initiative (GRI) first began publishing reporting standards in 1999 and maintains a warehouse of over 40,000 reports.

In 2017, the GRI began to move from a conceptual framework to reporting standards and over 51% of the S&P reporting companies utilize GRI guidelines. The Sustainability Accounting Standards Board (SASB) was organized by investors to function much like the Financial Accounting Standards Board (FASB) to bring a disciplined approach to sustainability reporting. SASB issues standards by industry that outline material topics and metrics to guide disclosure.

The third framework, Task Force on Climate-Related Financial Disclosures (TCFD), was organized by finance ministers and central bank governors to bring reliable and consistent disclosure to climate-related reporting. Currently, reporting companies are not required to adhere to any individual framework. However, a majority of S&P reporting companies utilize the GRI standards and 25% utilize or mention the SASB standards. Reporting entities are not necessarily relying exclusively upon one framework so duplication does occur.

Issuers Should Directly Provide Material Information to the Market Relating to ESG Issues Used by Investors to Make Investment and Voting Decisions: Because ESG reporting is not required, investors often rely upon third party sources to fill in gaps in available information. For example, 65% of S&P companies respond to the Carbon Disclosure Project questionnaire that scores and ranks respondents with regard to climate issues such as carbon emissions, water, waste and supply chain. However, the SEC notes that investors prefer and place greater reliance on direct disclosures by organizations.

To meet this demand, it is critical that companies report material information in a format consistent across an industrial sector since investors are using the information to allocate capital. The chairman of the International Accounting Standards Board (IASB) has asserted that many sustainability reports “greenwash” the data to put themselves in the best possible light.

To bring credibility to the process, many reporting entities have begun to rely on third party reviews for external assurance. Surprisingly, engineering firms were the most common third-party reviewer providing assurance on greenhouse gas reporting. But accounting firms and other third-party consultants have also weighed in on sections of ESG reports.

One reporting entity has even provided an examination report from its auditor stating that no material errors were found in the data.

To date, only a very small number of reporting organizations have included the Sustainability Report with their 10-K even though other unaudited information such as MD&A are regularly included. And the SEC notes that concern over forward looking information should not hinder full disclosure since such information is also common in MD&A. Some registrants do file their Sustainability Report with the SEC as an 8-K Item 7.01 item under Regulation FD.

Finally, the SEC Notes That Requiring Material ESG Disclosure Will Level the Playing Field Between Issuers: Currently, small and mid-sized registrants are at a disadvantage with regard to disclosure due to resource constraints. Without the required reporting systems and necessary staff, these firms are not able to match the information provided by larger competitors. The SEC states that by standardizing the type of information and materiality of such data, the playing field could be made more level for all filers when competing for capital.

As the emphasis on factors beyond financial performance become more critical to investors and the financial sector as a whole, companies would be well served to take a fresh look at sustainability reporting and keep abreast of developing trends.

About the Author: Don Carpenter is clinical professor of accounting at Baylor University. Contact him at Don_Carpenter@baylor.edu.

 

  • Building the CPA Pipeline: A Faculty Perspective

    The CPA profession faces a shrinking pipeline, with fewer candidates entering the field even as demand grows. Faculty research highlights strategies to boost Exam success to better equip students, especially first-generation and future candidates under Texas’ new additional licensure pathway. Strengthening these supports is key to preparing the next generation of CPAs and securing the profession’s future.
    View Article
  • CPE: Joint Ventures and Equity Method Accounting

    Joint ventures enable organizations to combine resources under shared control to achieve strategic objectives, yet their accounting treatment has often posed challenges. To address this, FASB issued ASU 2023-05. This article examines the new guidance and its implications for equity method accounting.
    View Article
  • From Pipeline to Mobility: TXCPA Champions Two Major Wins for the Accounting Profession

    TXCPA achieved two landmark victories at the 89th Texas Legislature: an additional CPA licensure pathway for candidates and a modernized mobility law that strengthens practice standards in Texas. These wins not only expand opportunities for future CPAs but also set a precedent for other states, reinforcing TXCPA’s role as a leading advocate for the profession’s future.
    View Article
  • Finding Community and Purpose: Mariella Bosquez’s Journey in Accounting and TXCPA Houston

    Mariella Bosquez’s path to accounting was anything but traditional, but through TXCPA Houston she found both community and purpose. From psychology major to active student leader, her story shows how diverse backgrounds, mentorship and involvement can open doors and inspire the next generation of CPAs.
    View Article
  • Saved by the Byrd Rule: PCAOB Survives the One Big, Beautiful Bill

    Lawmakers looked to eliminate the Public Company Accounting Oversight Board (PCAOB) by folding its duties into the SEC, but the effort was blocked under Senate budget rules. Supporters argued the move would save money, while critics warned it would weaken audit oversight and investor protection. For now, PCAOB remains intact.
    View Article
  • TXCPA’s 2024-2025 Outstanding Chapter Awards Recognize Leadership, Service and Impact

    TXCPA’s Outstanding Chapter Awards celebrate small and medium-sized chapters that go above and beyond in leadership, service and community impact. This year, the San Angelo, East Texas and Rio Grande Valley chapters were recognized. Together, their achievements highlight the dedication and creativity shaping the profession.
    View Article
  • Your Old Plan vs. a Better Plan: How Accounting Firms Can Attract More CAS Clients

    Many firms still rely on outdated, exhausting methods like cold calls, referrals and random networking to win CAS clients - but those days are over. By embracing SEO, accounting firms can attract a steady stream of qualified, high-value clients who are already searching for their services, resulting in more revenue, stronger client relationships and the freedom to focus on delivering value.
    View Article
  • What’s Happening Around Texas - September-October 2025

    From networking luncheons and campus connections to hospital tours and a gathering at the Rusty Axe Brewing Co., members in Brazos Valley, Dallas, East Texas, and El Paso came together in a variety of ways. Professionals and students are finding community, inspiration, camaraderie, and fresh opportunities while chapters are setting bold visions for growth.
    View Article
  • Celebrating Our 2025-2026 TXCPA Faculty and Student Ambassadors!

    Through our Ambassador Program, TXCPA works with Texas educators and students each year to share resources and engage the next generation of CPAs, building connections on campuses across the state. TXCPA Ambassadors help us strengthen our presence and learn more about what we can do to help build and support the CPA pipeline.
    View Article
  • Stronger Together: Empowering the Next Generation

    The September/October issue of TXCPA’s magazine shines a spotlight on building the CPA pipeline and supporting future professionals. The issue is packed with ways to grow and stay connected. Most importantly, it’s a reminder that the future of our profession is built together - with your passion, time and voice.
    View Article
  • TXCPA Pipeline Resources at a Glance

    TXCPA’s Pipeline Resources offer something for everyone in the accounting pipeline — students, candidates, educators, and employers. Whether you’re exploring the field, teaching it or hiring talent, TXCPA connects you to the tools, people and opportunities that make an impact.
    View Article
  • The Statement of GreenHouse Gas Emissions

    Global standards for climate disclosure are rapidly evolving and companies are under pressure to measure and report indirect emissions across their value chains. A proposed Statement of GreenHouse Gas Emissions could give investors and stakeholders clearer, more comparable insights into corporate sustainability performance.
    View Article
  • 110 Years Strong: TXCPA Returns to Its Roots at the Tremont House

    TXCPA marked its 110th anniversary by returning to the historic Tremont House, celebrating a legacy of leadership while setting bold goals for the future. From legislative victories and a new tiered membership model to expanded student outreach and the launch of AcctoFi, the organization is driving transformation across advocacy, education and member engagement.
    View Article
  • Take Note

    In this edition of Take Note: Insurance Benefits Tailored for TXCPA Members; Enhancing Your Social Wellness; Stand Out as a Leader with the CGMA® Designation; TXCPA’s Career Center; Your Next Learning Opportunity
    View Article
  • Classifieds

    The classified ad section features listings for practice sales, firm buyers and specialized services. Whether you're expanding, selling or exploring niche opportunities, these ads connect you to valuable prospects and resources.
    View Article

CHAIR
Mohan Kuruvilla, Ph.D., CPA

PRESIDENT/CEO
Jodi Ann Ray, CAE, CCE, IOM

CHIEF OPERATING OFFICER
Melinda Bentley, CAE

EDITORIAL BOARD CHAIR
Jennifer Johnson, CPA

MANAGER, MARKETING AND COMMUNICATIONS
Peggy Foley
pfoley@tx.cpa

MANAGING EDITOR
DeLynn Deakins
ddeakins@tx.cpa

COLUMN EDITOR
Don Carpenter, MSAcc/CPA

DIGITAL MARKETING SPECIALIST
Wayne Hardin, CDMP, PCM®

CLASSIFIEDS
DeLynn Deakins

Texas Society of CPAs
14131 Midway Rd., Suite 850
Addison, TX 75001
972-687-8550
ddeakins@tx.cpa

 

Editorial Board
Derrick Bonyuet-Lee, CPA-Austin;
Aaron Borden, CPA-Dallas;
Don Carpenter, CPA-Central Texas;
Rhonda Fronk, CPA-Houston;
Aaron Harris, CPA-Dallas;
Baria Jaroudi, CPA-Houston;
Elle Kathryn Johnson, CPA-Houston;
Jennifer Johnson, CPA-Dallas;
Lucas LaChance, CPA-Dallas, CIA;
Nicholas Larson, CPA-Fort Worth;
Anne-Marie Lelkes, CPA-Corpus Christi;
Bryan Morgan, Jr, CPA-Austin;
Stephanie Morgan, CPA-East Texas;
Kamala Raghavan, CPA-Houston;
Amber Louise Rourke, CPA-Brazos Valley;
Shilpa Boggram Sathyamurthy, CPA-Houston, CA
Nikki Lee Shoemaker, CPA-East Texas, CGMA;
Natasha Winn, CPA-Houston.

CONTRIBUTORS
Melinda Bentley; Kenneth Besserman; Kristie Estrada; Holly McCauley; Craig Nauta; Kari Owen; John Ross; Lani Shepherd; April Twaddle; Patty Wyatt