Trust is the foundation of corporate reporting. When that trust is broken, regulation often follows. In the early 2000s, major corporate scandals exposed serious weaknesses in financial reporting and governance practices. The response was the Sarbanes–Oxley Act (SOX), a reform that strengthened internal controls, increased executive accountability and helped restore investor confidence in corporate financial statements.
Two decades later, a similar conversation is emerging around environmental, social and governance (ESG) reporting.
Companies around the world are publishing sustainability reports describing their climate strategies, social initiatives and governance practices. Investors, regulators and the public increasingly rely on this information to understand how companies manage environmental and social challenges. ESG reporting has therefore become an important part of modern corporate transparency and is increasingly shaping how markets evaluate long-term corporate performance.
However, unlike financial reporting, the systems that ensure the reliability of ESG information are still developing.
Many sustainability reports rely on a mix of voluntary frameworks, evolving standards and company-generated data. While these disclosures aim to improve transparency, the lack of consistent verification makes it difficult for stakeholders to assess the accuracy or comparability of the information. This has also intensified concerns about “greenwashing”, in which sustainability claims may appear stronger than the underlying performance.
As ESG information increasingly influences investment decisions, unreliable disclosures can distort market signals and undermine stakeholder confidence.
The challenge today is not the absence of ESG disclosure, but the reliability of what is being disclosed. As companies publish increasingly detailed sustainability reports, the key question is whether this information genuinely reflects organisational performance or simply presents a more favourable narrative. In recent years, regulators and standard-setters around the world have begun introducing new sustainability reporting frameworks, signalling growing recognition that stronger oversight of ESG information is needed.
This raises an important governance question: should ESG disclosures be supported by stronger accountability mechanisms similar to those introduced under the Sarbanes–Oxley Act?
A SOX-inspired approach to ESG would not necessarily replicate financial regulations. Instead, it could introduce practical safeguards that strengthen trust in sustainability reporting.
For example, requiring senior executives to certify sustainability reports could increase responsibility for the accuracy of disclosed information. Stronger internal systems to manage ESG data could improve reporting processes, while independent verification by external experts could further enhance credibility. Such measures would move sustainability reporting closer to the level of discipline and accountability that characterises financial reporting today.
Such developments would also expand the role of internal audit functions. As sustainability becomes more integrated into corporate strategy, internal auditors are increasingly expected to review the governance structures, risk management practices and reporting processes related to ESG initiatives. By assessing data reliability and identifying gaps between commitments and actual practices, internal audit can contribute to greater transparency and accountability.
At the same time, policymakers must recognise the complexity of ESG reporting. Sustainability performance involves environmental impact, social responsibility and governance quality; areas that often include qualitative assessments and evolving measurement standards. Excessively rigid regulation could create unnecessary compliance burdens or discourage innovation in sustainability practices.
The challenge, therefore, is to strike the right balance: promoting accountability while allowing flexibility in how organisations implement sustainability practices.
Effective governance should strengthen the credibility of sustainability disclosures without stifling the evolving nature of ESG measurement.
Ultimately, the debate about a potential “ESG Sarbanes–Oxley” reflects a broader shift in how corporate performance is evaluated. As investors and society place greater emphasis on sustainability, the credibility of non-financial disclosure becomes increasingly important. In this context, ensuring the integrity of ESG information is not merely a compliance issue; it is central to maintaining trust in modern capital markets.
Transparency alone is not enough. For ESG reporting to build genuine trust, what companies disclose must accurately reflect what they actually do.
Dr Suaad Jassem
The writer is Assistant Professor of Accounting and Auditing, College of Banking and Financial Studies
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