SEC Commissioners on the speaking circuit continue to offer competing arguments for requiring greater ESG disclosures. On July 21, Republican Commissioner Hester Peirce
offered up ten(!) theses covering her view on why the SEC should not issue prescriptive ESG disclosure requirements. Highlights include:
- The SEC should adhere to the materiality standard for disclosures. If a given ESG metric is material to the long-term value of a company, current rules cover it, but if not, it should not be required. Commissioner Peirce believes the SEC is most effective when focusing on material financial risks and it is not clear ESG risks fall into that basket.
- It is “stakeholders,” not investors, requesting the new disclosures.
- ESG is necessarily qualitative, making any disclosures inherently less applicable. There are ongoing debates about how to best model or measure ESG performance and which metrics are applicable.
- ESG disclosure rules will risk the SEC’s neutrality as they are inherently political and may push capital towards favored industries. That rush of capital towards “green” industries and businesses could destabilize markets.
On the other hand, SEC Chairman Gary Gensler, who would serve as a tie breaking vote on the Commission,
gave a speech on July 28 to the UN’s Principles for Responsible Investment stating his explicit support for new disclosure rules.
As reported in the
Wall Street Journal, he has directed the SEC staff to develop a mandatory climate risk disclosure rule that should include:
- Disclosures should be consistent and comparable (while he did not specifically say so, his comments indicate these would be market-wide rather than industry specific).
- Suggestions for the appropriate location of disclosure (such as the 10-K).
- A prescribed list of qualitative and quantitative disclosures:
- Qualitative disclosures could cover how leadership manages climate-related risks and opportunities and how these feed into the company’s strategy.
- Quantitative disclosures could include greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals.
- Suggestions for data and metrics companies must use when making public commitments such as pledges to reduce emissions or be “net zero” by a specific date.
- An SEC-developed disclosure regime informed by existing standard setters such as the Task Force on Climate-related Financial Disclosures.
The Center will be ready to provide comments on any proposed rule and provide the SEC with our Subscribers’ insights. We expect the proposed rule will arrive in October.
