FASB’s “Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards” explains how the financial accounting standards may trigger required disclosure under current SEC requirements of environmental, social, and governance (ESG) information. Among the key takeaways is that although the scope of “ESG” is potentially much broader than the topics covered by the financial accounting standards, numerous current accounting standards implicate ESG matters to the extent they are material to the company’s financial statements, not unlike other factors in a company’s business and operating environment that warrant evaluation and potential disclosure.
Importantly, FASB is a neutral, independent standard setter that aims solely to ensure that its financial accounting and reporting standards provide decision-useful information to investors and other financial report users:
Financial accounting standards are not intended to drive behavior in any way, including benefitting one industry or business model over another or spurring businesses to take certain actions. Instead, financial accounting standards are intended to provide investors and related users with decision-useful, neutral information that faithfully represents an entity’s economic activity as a basis for investment and other capital allocation decisions.
The publication illustrates by example with reference to environmental matters how specific GAAP requirements may call for management’s consideration and potential disclosure depending on the company’s specific facts and circumstances.
This post first appeared in the weekly Society Alert!