Financial Footnote Disclosures

ESG Investments

Explore the challenges companies face in defining ESG investments and the various categories of ESG projects they undertake, from community investments to sustainable infrastructure. Delve into the frameworks companies use, such as TCFD, GRI, and CDP, to report on, measure, and disclose their ESG initiatives.

Apr 1, 2023
October 10, 2023

The expectation of SEC regulation related to ESG is accelerating discussion on companies' investment disclosures. This heightened focus on ESG reporting impacts firms' investment choices and raises the following questions: What constitutes an investment in ESG? What are companies currently doing to invest in ESG? How are these investment impacts reported? This article will address these questions and offer recommendations to companies seeking to enhance their ESG investment reporting.

What constitutes an investment in ESG?

The SEC's lack of specific guidance on what qualifies as a business investment in ESG has created difficulty for companies in determining which initiatives and projects should be disclosed as ESG investments. While some investments and projects are standard business practices, others may involve targeted efforts to fulfill explicit ESG objectives. Furthermore, industry-specific ESG investment criteria can differ significantly, necessitating communication between peers to establish standards and best practices. As a result, relying on relevant SEC comment letters and company examples is crucial when determining whether an investment meets ESG qualifications.

ESG-related capital expenditures heavily depend on a company's industry. For instance, companies in the energy sector that earn revenue through natural resource extraction and processing will inevitably have environmental-related capital expenditures. Conversely, a merchandising company must be more purposeful in categorizing ESG investments because its primary business activities are not ESG-related. Thus, the critical question is whether an ESG investment classification should be based on the activity's nature or the intention behind the expenditure.

When a company's decision-making is ESG-oriented, the investment will likely impact financial statement disclosures for ESG. However, suppose a company already employs certain investing strategies that overlap with ESG priorities. In that case, it is improbable that ESG factors drive business decisions; thus, disclosing the investment as ESG-related would be inappropriate. For example, consider an electric company that is rebuilding a power grid. Is the company revamping the power grid specifically so that it will be more environmentally friendly, or was it already planning to do so as a routine update to increase efficiency? If the latter is the primary reason, claiming that the project is for ESG purposes is a bit of a stretch.

The CFA Institute has outlined several factors that indicate when a project or goal might be rooted in an ESG cause (see table below). If one of these factors is a central component of a project or investment and there is measurable proof that the project has a material impact, it is appropriate to make a disclosure for ESG.

Environmental Social Governance
Climate change and carbon emissions Customer Satisfaction Board Composition
Air and water pollution Data protection and privacy Audit Committee Structure
Biodiversity Gender and Diversity Bribery and Corruption
Deforestation Employee Engagement Executive Compensation
Energy Efficiency Community Relations Lobbying
Waste Management Human Rights Political Contributiosn
Water Scarcity Labor Standards Whistleblower Schemes

What are companies currently doing to invest in ESG?

Companies are investing in a wide range of ESG projects and initiatives, which fall under categories such as community investments, sustainable infrastructure investments, and ESG services provided by the company.

Community Investments

Companies are increasingly able to invest in their local communities and beyond. They can collaborate with organizations that specialize in supporting specific community needs, donate funds, or invest in community-focused projects. These investments typically fall within the social and environmental aspects of ESG.

In February 2021, winter storm Uri caused severe damage to infrastructure across Texas. Dow Chemical and other industry leaders replaced around 42,000 feet of metal pipe with leak and corrosion-resistant high-density polyethylene (HDPE) pipe in three Texas towns, relieving residents left without drinking water. The new pipes are an environmentally sustainable choice for water distribution; they are expected to help the towns conserve an estimated 3.5 million gallons of annual freshwater over the next five years.

Google1  has made significant investments in its community, including a recent initiative to replenish more water than it consumes by 2030. The company specifically focuses on improving watershed health and ecosystems in water-stressed communities. Google is one example of many companies that have combined social and environmental initiatives to create a dynamic and highly effective ESG investment.

Microsoft2 is making a positive impact by investing in resources for the African American community. In its Impact Summary Report for 2022, the company describes all its investments and the other charities and organizations it has partnered with to make a difference. Some of these investments included expanding the technology available in schools and community colleges and funding student tuition.

Community Investments: Home Depot

Sustainable Infrastructure Investments

Investments in sustainable infrastructure are more internal compared to external investments in communities. Investments in sustainable infrastructure relate to a company’s processes and structure. One of the most common examples of this type of investment is in renewable energy or renewable products.

Abigail Beach, a writer for the CAIA Association, suggests in her article "ESG in Infrastructure" that companies should develop an ESG Management System (ESGMS) to best disclose their investments in sustainable infrastructure. This will help companies establish formal reporting and communication channels throughout the organization, resulting in increased monitoring and reporting of projects. This will help firms to “ensure ESG issues at the project level are managed in accordance with the firm’s broader ESG strategy.”3  When implemented together, these measures will enable companies to provide more meaningful disclosures that demonstrate their ESG goals.

Sustainable Infrastructure Investments: PBF Energy
Sustainable Infrastructure Investments: Tesla

Other ESG Services Investments

Investing in ESG services is another method of investing in ESG. Such investments often intersect with community investments because many ESG services impact the community to some extent. However, ESG services are generally more intangible, such as providing community service hours or investing in an ESG fund that supports other ESG-related projects.

Companies can invest in ESG services by providing volunteer hours to the community, charities, or other foundations needing support. For instance, Google7 has pledged one million employee volunteer hours over five years to provide services to local communities and charities that can make the most significant impact. Additionally, Google has committed to donating $1 billion to advance education among those in need through technology. As part of this commitment, Google is implementing technology services and learning opportunities to assist underprivileged individuals and children. These services have already significantly impacted the community.

The Hollister Group co-created RecoveryWorks8  as part of the non-profit programs at Massachusetts General Hospital. This program targets individuals with substance use disorders and assists them in finding employment opportunities that match their experience level. In addition to this program, the Hollister Group developed other programs through Zoom to further their initiative. The company’s CEO also became involved by leading weekly meditation sessions and launching a podcast for this group. This combination of services has positively impacted those with substance use disorders and serves as a unique example of how other companies can invest in ESG services.

Investments in Other ESG Services Supported by Companies: Callaway Golf Company

ESG Funds

As previously mentioned, companies may opt to invest in ESG topics through ESG funds. These funds provide a platform for investors to simultaneously engage in various initiatives. ESG funds typically comprise several components, some directly linked to ESG and others not. As such, ESG funds are generally categorized along a three-part spectrum: ESG Integration, ESG-Focused, and Impact Investing. ESG Integration funds consider one or more ESG factors alongside non-ESG factors in their investment decisions. ESG-Focused funds concentrate on one or more ESG factors, such as carbon emissions or workforce diversity. Impact Investing is an ESG-Focused Fund that aims to achieve a specific ESG impact. The SEC proposes “minimum disclosure requirements for any fund that markets itself as an ESG-Focused Fund and streamlined disclosure for Integration Funds that consider ESG factors as one of many factors in investment selections.”

How are these investment impacts reported?

As the SEC does not provide specific guidance on ESG reporting, companies rely on various frameworks to report their ESG investments. Below are the requirements for reporting ESG community, sustainable infrastructure, and services investments for some of the most relevant frameworks.

1. Task Force on Climate-related Financial Disclosures (TCFD):

The TCFD provides a framework for financial disclosures related to climate change, aimed at helping consumers understand how companies assess climate-related risks and opportunities. The framework is divided into four categories: governance, strategy, risk management, and metrics and targets, each with proposed disclosures. The categories and their disclosures are as follows:

• Governance: Disclose the organization’s governance around climate-related risks and opportunities.

• Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material.

• Risk Management: Disclose how the organization identifies, assesses, and manages climate-related risks.

• Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

In an SEC comment letter to Broadcom Inc. regarding its 10-K for the fiscal year ended October 31, 2021, Broadcom Inc. explains that it determined the materiality of the effects of climate change through the annually conducted assessments of climate-related risks under the TCFD framework. Using this framework, the company determined that disclosure was not necessary.9

2. Global Reporting Initiative (GRI):

GRI is an international organization that helps businesses and other organizations take responsibility for their impacts by providing them with a global common language to communicate those impacts. This common language includes Universal Standards that apply to all organizations, Sector Standards that aim to improve the quality, completeness, and consistency of reporting by organizations, and Topic Standards that contain disclosures for providing information on specific topics.

GRI 413, "Local Communities," requires organizations that have determined local communities to be a material topic to report specific disclosures.

• Disclosure 413-1 mandates reporting the “percentage of operations with implemented local community engagement, impact assessments, and/or development programs.”

• Disclosure 413-2 mandates reporting on “operations with significant actual and potential negative impacts on local communities, including the location of the operations and magnitude.”

GRI 203, "Indirect Economic Impact," mandates reporting requirements for organizations that have identified indirect economic impacts, such as sustainable infrastructure investments, as a material topic.

• Disclosure 203-1 mandates reporting on the “extent of development of significant infrastructure investments, current or expected impacts on communities and local economies, and whether these investments and services are commercial, in kind, or pro bono engagements.”

Dow Chemical engaged Deloitte & Touche LLP to perform a review engagement on management’s assertion related to the 2021 ESG disclosure prepared in accordance with the GRI Standards Comprehensive option. In the Independent Assurance Statement, Deloitte acknowledged the measurement uncertainty of many GRI disclosures by stating that the “preparation of the ESG disclosures in the GRI Content Index included within the 2021 ESG Report requires management to interpret the criteria, make determinations as to the relevancy of information to be included, and make estimates and assumptions that affect reported information. Measurement of certain amounts and ESG disclosures includes estimates and assumptions that are subject to substantial inherent measurement uncertainty resulting, for example, from the accuracy and precision of greenhouse gas emission conversion factors and the process to measure energy consumption. Obtaining sufficient, appropriate review evidence to support our conclusion does not reduce the inherent uncertainty in the amounts and ESG disclosures. The selection by management of different but acceptable measurement methods, input data, or assumptions may have resulted in materially different amounts or ESG disclosures being reported.” Although the measurements of GRI disclosures are not entirely objective, they are considered reasonable based on good practice. Thus, Deloitte concluded in this review that the ESG disclosures were fairly stated.10

3. Carbon Disclosure Project (CDP):

CDP is a global disclosure system for managing environmental impacts for investors, companies, cities, states, and regions. CDP offers companies scorecards to provide a snapshot of their environmental performance and disclosure. Using a scoring methodology, CDP incentivizes companies to “measure and manage environmental impacts” through climate change, forest preservation, and water security questionnaires. Companies are assigned a grade ranging from A to D-, depending on their level of disclosure, awareness, leadership, and accountability.

Google is one of more than 200 companies that employ the CDP framework. Each year, Google releases a report detailing its evaluation against corresponding criteria. The company must be specific in this report as it discloses metrics and explains its investments and reporting on ESG.11

While this report is extensive and not intended for the average consumer, the resulting scorecard letter grade is relatively easy for investors to comprehend.

Although many companies use frameworks to disclose ESG initiatives, not all do. The most common practice is for companies to generate their own ESG report and share it voluntarily. The SEC is aware of this practice and may ask companies to explain how their ESG report aligns with the information disclosed in their financial statements.

Voluntary Reporting: Post Holdings Inc.

Several companies have disclosed their ESG investments in a separate report rather than the 10-K and related disclosures. Companies adopting this approach will likely possess the data and processes needed to report accurate information. Although these companies are not disclosing ESG investment data in their financial statements directly, they will be better equipped to comply with future SEC guidance due to the existence of reports detailing their ESG investments.

Avoid Greenwashing in Disclosures

When companies base decisions around ESG goals, ESG-related disclosures can aid investors in comprehending how business processes contribute to financial statements. However, if companies falsely present ESG-related disclosures as driving decision-making when they do not, they mislead investors, making the disclosures inappropriate. Such disinformation has been termed “greenwashing” and has been defined more in-depth in this ESGhub article. Even if a company is making an ESG effort but does not have measurable evidence to support its claims, disclosing it in the financial statements is inappropriate. Depending on a company's acceptable level of risk, it may be more appropriate to include ESG-related content in a non-financial statement document, such as a sustainability report. Until the SEC formalizes ESG-related information in the 10K, this approach is sensible for companies unsure about appropriate disclosure.


Although companies have endeavored to disclose their ESG investments, there is still a long way to go regarding investment disclosures in their financial statements. While many companies have acknowledged their ESG investments in formal reports and followed different frameworks, investors rely primarily on financial statements to derive material information to make decisions. Inconsistencies in how and where these investments are reported will likely persist until the SEC provides more authoritative guidance on disclosure requirements.


[1] Google 2022 EnvironmentalReport - https://sustainability.google/reports/

[2]Microsoft ImpactSummary 2022 Report - https://www.microsoft.com/en-us/corporate-responsibility/reports-hub    

[3]ESGin Infrastructure - https://caia.org/sites/default/files/8_aiar_vol-6_issue-1_esg_in_infrastructure_7-19-17.pdf

[4]2022-07-28 – CORR: https://www.auditanalytics.com/app/view-comment-letter.php?cl_fkey=edgar/data/1534504/0001534504-22-000050.txt&s=

[5] 2022-02-17– 10-K: https://www.sec.gov/ix?doc=/Archives/edgar/data/1534504/000153450422000007/pbf-20211231.htm

[6] 2022-03-31 – 10-Q: https://www.sec.gov/ix?doc=/Archives/edgar/data/1534504/000153450422000019/pbf-20220331.htm

[7]Google’scommitment to the community: https://www.google.org/billion-commitment-to-create-more-opportunity/#:~:text=Sundar%20Pichai%2C%20our%20CEO%2C%20recently,1%20million%20employee%20volunteer%20hours.

[8] RecoveryWorksWebsite: https://therecoveryworks.org/#our-partnerships

[9] 2022-08-24 – CORR: https://www.auditanalytics.com/app/view-comment-letter.php?cl_fkey=edgar/data/1730168/0001730168-22-000088.txt&s=

[10] https://corporate.dow.com/content/dam/corp/documents/about/066-00397-01-2021-esg-report.pdf#page=183

[11] Google CDP ResponseReport 2022 - https://sustainability.google/reports/

[12] 2022-07-15 – COR: https://www.auditanalytics.com/app/view-comment-letter.php?cl_fkey=edgar/data/1530950/0001530950-22-000226.txt&s=

[13]Environment, Social, Governance (ESG) Report - https://www.postholdings.com/responsibility/