The United States Securities and Exchange Commission recently outlined a proposed rule that aims to standardize how corporations and financial institutions report their climate-related financial disclosures. The proposed rule hopes to improve the relationship between investors and corporations by improving the quality and quantity of information that corporations disclose. As the impacts of anthropogenic climate change become more widely recognized, it is important for investors to know how institutions are being impacted by these changes. It is currently difficult for investors to gain access to comparable and high-quality information due to the number of disparate frameworks that corporations use when disclosing this information. Disparate framework use and voluntary adoption of these frameworks by companies have led to investor confusion when making decisions about climate-related risks.

In a similar fashion, the myriad of frameworks available and voluntary reporting of Environmental, Social, and Corporate Governance (ESG) information has led to much investor confusion when investing with ESG in mind. ESG information can be utilized by investors to learn more about a company’s practices and culture. For instance, information about a company’s environmental (E) practices, like whether it sources products from suppliers with a link to deforestation, can impact investor decision-making. However, because ESG disclosures are unregulated and wholly voluntary, investors cannot always gain access to high-quality comparable information on these practices. This paper seeks to understand the proposed rule in greater detail in order to advocate for improved regulation and standardization of ESG reporting as the underlying problems and assumptions are the same in both cases.