At face value, Atkins’ statement seems unexceptional. But it leaves open a key question: What is material to a firm’s financial performance? Atkins suggests that disclosure should not be driven by “political fads or distorted objectives,” citing the European Union’s Corporate Sustainability Reporting Directive, which expands and standardizes corporate sustainability reporting to improve transparency and comparability of environmental, social and governance (ESG) information. Such disclosures, he argues, “may be socially significant but are not generally financially material.”

But this sounds like wishful thinking. If European regulators think the environment matters and they act on that belief, that materially affects multinational firms’ costs of doing business in Europe. Just last month, a Paris court found TotalEnergies had engaged in “misleading commercial practices” by claiming it was “a major actor in the energy transition.” Citing EU legislation that requires green claims to be supported by “objective, publicly available and verifiable commitments and targets,” the court found the company’s climate pronouncements to be inconsistent with its expanded investments in hydrocarbons. While the fines Total has incurred are small, such fines are likely to be larger in the future, and thus material to investors.

Obviously, US regulators today put little weight on companies’ green strategies or the need to disclose them. But if regulators elsewhere care more, such strategies are still material to firms that do business across borders. And since there is a deep divide in the US between Democrats and Republicans on the merits of ESG policies, a company that avoids ESG-related actions during the current administration might find itself hamstrung in a future one. Should investors who value long-run earnings be able to make their own judgments about these issues? Regardless of whether ESG is a political fad (or whether opposition to it is), disclosures of ESG-aligned practices may still be material to the bottom line.

Nor are regulators the only ones who might care. In the TotalEnergies case, the concern was that customers will be misled by the company’s environmental pronouncements. In a warming world, it is reasonable to expect that some people’s purchasing decisions might well be swayed by a company’s environmental practices.

Moreover, research suggests that Brazilian firms with better environmental practices (when certified by regulators) attract more skilled workers and ultimately perform better. Thus, whether environmental practices command universal political appeal is beside the point. If they attract a preferred kind of worker and enhance a firm’s bottom line, the company’s shareholders would want to know about it.

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Atkins does raise a potentially valid concern about the intended audience for corporate disclosures. He opposes rules “written for shareholders who seek to effect social change or have motives unrelated to maximizing the financial return on their investment.” But, again, what if some shareholders are willing to sacrifice returns for socially beneficial practices? Should their preferences be ignored?

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