Most US public companies are busily preparing their fiscal 2025 Form 10‑K and 2026 annual meeting proxy statement. In this post, we discuss our sustainability disclosure expectations for this year, informed by market trends, our involvement with in-process filings and industry chatter.
Stepping Off the Sustainability Bandwagon
Starting around 2020-2021, a large number of US public companies began promoting their sustainability and corporate responsibility initiatives in their Form 10-K and proxy statement. The peak was in 2024, with disclosures beginning to subside last year.
This year, we expect to see a further reduction in dedicated sustainability subsections in Form 10-K Business sections and in proxy statements. There will of course be exceptions, in particular where sustainability is core to the registrant’s products or services. Many registrants also will continue to discuss sustainability matters that contribute to value creation. But expect less of the feel-good fluff in this year’s filings.
We expect to continue to see a divergence in sustainability disclosures by domestic registrants and foreign private issuers. Many foreign private issuers view sustainability as core to their business and include more lengthy sustainability discussions in their home country annual reports and by extension in their annual SEC filings.
Sustainability Risks and Regulations Still Abound
Bucking the general trend of less sustainability disclosure in SEC filings, sustainability-related risk disclosures look likely to in most cases receive as much space as last year, and in some cases more. Form 10-K risk factors over time tend to get longer rather than shorter (a perennial criticism of the SEC), since companies view them as protective and there is a herd mentality to risk factor disclosure.
This year, some companies are enhancing risk factor disclosures relating to extended producer responsibility requirements. “Anti-ESG” risk factor disclosures also are expected to increase modestly, including relating to employment practices (DEI), debanking and social polarization, among other themes. Some companies face elevated supply chain-related sustainability risks, in particular due to tariff-induced supply chain shifts, and are therefore enhancing disclosures relating to those risks.
We do not expect many companies to pare back their discussion of climate-related risks. Discussions of the physical risks of climate change are expected to be similar to last year. However, companies with granular transition risk (and Business section) disclosures relating to climate regulation are in many cases making year-over-year changes in light of regulatory changes, such as those involving the SEC’s climate disclosure rules and US federal energy and environmental policy changes.
Discussions of specific EU sustainability-related requirements also are being revised, and in many cases shortened or even eliminated. For example, some companies are eliminating discussions of risks relating to the EU’s Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive due to significant increases in the compliance thresholds and the delay of initial CSDDD compliance until mid-2029. Many registrants are dialing back risk and Business section disclosures relating to the EU Deforestation Regulation and Carbon Border Adjustment Mechanism as a result of changes that in most cases will make compliance less onerous.
Climate – Materiality Rules the Day
Even though the SEC’s climate disclosure rules are effectively dead, in some cases there still is a place for climate disclosures in annual SEC filings under the SEC’s principles-based disclosure requirements.
In addition to risk factor and Business section disclosures, which are discussed above, registrants need to consider legal proceedings and MD&A. Parts of the SEC’s 2010 interpretive guidance relating to climate change are dated, but it provides a good general framework for thinking about the potential relevance of climate matters under current SEC disclosure requirements. Although it is unlikely the SEC will in the next three years be issuing many (any?) comments relating to climate disclosures, the SEC’s September 2021 Sample Letter to Companies Regarding Climate Change Disclosures also provides a helpful framework for thinking about potential Form 10-K climate disclosures.
The Continuing Evolution of Human Capital Disclosures (or Devolution, Depending Upon One’s Views)
Last year, there was a late-in-the-process reset of DEI disclosures as a result of early Presidential Executive Orders. Many companies struggled to find the right balance. Commensurate with changes in corporate practices and the Administration’s continuing focus on this area, Form 10-K human capital disclosures will be shorter this year.
However, human capital disclosures still have a place in the Form 10-K. To the extent material, Item 101(c)(2)(ii) of Regulation S-K requires registrants to include a description of their human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing its business. Depending on the nature of the registrant's business and workforce, these may include measures or objectives that address the development, attraction and retention of personnel.
This year, expect to see discussions that are more focused on broad-based human capital initiatives and the role of merit in human capital decisions.
Proxy statements generally will continue to include some board diversity data. Many companies will continue to report board gender diversity since this statistic is still of interest to many institutional investors, even if not a factor in their engagement, voting or investment decisions (however, diversity is still taken into account by some institutional investors, as well as generally by Glass Lewis). Continuing last year’s trend, there is expected to be less board-level racial/ethnic diversity data in proxy statements this year, as well as less data in proxy statements and Form 10-Ks relating to management and rank-and-file diversity of all types.
Pursuant to S-K Item 407(c)(2)(vi), proxy statements must still discuss whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director. If the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, the proxy statement must describe how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy.
Mind the Gaps
Even though some sustainability disclosure requirements have been eliminated or scaled back – such as the SEC’s climate disclosure rules and the EU Corporate Sustainability Reporting Directive – overall, the volume of sustainability disclosure requirements that US-based and other multinationals need to comply with globally continues to increase.
Registrants therefore need to be mindful of how their mandatory sustainability disclosures across jurisdictions fit together. For example, are climate risks discussed under other regulatory mandates (such as Australia, California or the UK) appropriately and consistently discussed in the Form 10-K? Ditto for modern slavery. Also, are risks and opportunities determined to be material for CSRD reporting appropriately addressed in SEC reporting?
As always, registrants also need to consider the interplay between their mandatory and voluntary sustainability reporting.
Sustainability Governance Remains a Focus
Notwithstanding general trends in sustainability disclosure in SEC filings, sustainability governance remains a focus of many institutional investors and is an integral part of the board’s oversight role and enterprise risk management at many registrants. This year, proxy statements will continue to devote space to sustainability governance at the board and management levels, although in some cases these disclosures will be further right-sized to reflect the relative importance of sustainability matters.
