How the EPA’s Actions Are Shaping Voluntary Climate Disclosures: Key Insights for Public Companies

Public companies facing inspections or enforcement actions from the Environmental Protection Agency (EPA) often share less information about their environmental practices and risks. This finding comes from a study by Mark Zakota, an Assistant Professor at the University of Maryland’s Robert H. Smith School of Business.

Zakota looked at over 60,000 earnings calls from 2,811 U.S. companies between 2002 and 2019. His research shows that when the EPA scrutinizes a company, the amount and quality of its voluntary environmental disclosures drops by 18%.

This is especially relevant today. The Securities and Exchange Commission (SEC) has recently tried to push for more transparent climate disclosures. They set mandatory climate-disclosure rules in March 2024 but had to pause them in April and backed down on legal support by early 2025 after facing significant challenges.

Zakota warns that if the SEC continues with its climate initiative while EPA investigations are underway, it could hinder the transparency the SEC aims for. For more effective communication, cooperation between the SEC and EPA is essential, alongside stronger environmental governance within companies.

The effect of EPA scrutiny is even stronger for firms that lack environmental expertise on their boards. Zakota emphasizes that having directors with environmental backgrounds helps alleviate concerns about the costs of disclosing information. This points to the importance of board expertise in maintaining open communication about climate issues.

Data from the World Economic Forum shows that businesses with transparent environmental practices tend to perform better financially. A 2022 report indicated that companies focusing on sustainability attracted 88% more investments than those with less focus.

In summary, as companies navigate the complex landscape of environmental regulations, both SEC and EPA actions play critical roles in shaping transparency. It’s important for businesses to be proactive about sustainability and to build knowledgeable boards that can support effective disclosures.

For a deeper look at this study, you can check out Zakota’s research: EPA Scrutiny and Voluntary Environmental Disclosures.

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