Aligning Investor Interests with Sustainable Shareholder Value

At the core of federal securities laws lies a fundamental exchange—investors exercise the freedom to gauge and undertake risks as long as the capital-seeking entities make public disclosures.

The Intersection of Lasting Value and Shareholder Returns: In our dialogues, the emphasis on “long-term” value is recurrent. It transcends mere financial metrics, encapsulating the returns stakeholders garner over sustained periods. We must create a balance between intangibles and tangibles to maximize purpose and profits. The U.S. Securities and Exchange Commission (SEC) is now on the cusp of mandating approximately 2,800 domestic corporations to commence the disclosure of risks associated with climate change to their financial frameworks.

Mandatory Disclosures: The onus is on publicly listed entities to transparently reveal their direct greenhouse gas emissions, should a company deem the information “material” for investors. Material is information the investor should know before they purchase shares. There is a list of considerations, in addition to three new rules:

  • “Accelerated filers,” defined by the SEC as companies with publicly traded shares worth $75 million or more, are required to disclose Scope 1 and 2 emissions.
  • Costs incurred as a result of severe weather events and other natural disasters must be disclosed on financial statements.
  • Actual and potential material impacts of climate-related risks on a company’s strategy, business model, and outlook must be disclosed.

Emerging Concerns:

  • the absence of uniform criteria for determining the “material” nature of information.
  • the risk of misrepresentation of their climatic influence.
  • the lack of regulatory guardrails to curtail companies from asserting unverified claims about their carbon footprints.

The Silver Lining for Corporate Conduct: This scenario ushers in a prime opportunity for entities to foster a culture of education among all their stakeholders. Embracing a paradigm of trust and openness mandates the veracity of corporate disclosures. In the forthcoming era of intensified investor scrutiny, we foresee a pivot towards revisiting targets for former ESG pledges. Expect a surge in the infusion of multifaceted expertise from risk management, finance, brand marketing, and other experts as companies strive to align their narratives with this evolved paradigm of shareholder value.

Official rule

Press release


By Patrice Rhone March 3, 2024

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