The SEC published its
2021 Agenda in mid-June indicating its intention to address HCM and ESG disclosure rules this year. Chairman Gensler has highlighted several
specific data points on ESG he would like to see companies disclose, and the Commissioners have been making the rounds on the speaking circuit.
Most recently, Commissioner Allison Herren Lee spoke at the
Society for Corporate Governance National Conference on the increasing importance of ESG risks to investors. She noted that as investor focus on these topics has grown, so have boards’ responsibilities to consider and disclose their views and efforts to address risks and opportunities.
Commissioner Lee advised boards to address the growing ESG and HCM concerns by increasing diversity, adding ESG expertise, and linking management’s pay to success on these issues.
- Board Diversity: Citing a 2019 survey which showed only 6% of corporate directors highlighted climate risk as a major concern and 56% felt investor attention on sustainability was overblown, Ms. Lee called on boards to refresh and diversify perspectives, noting that by improving diversity, boards are more likely to include directors considering proactive approaches to climate and ESG governance.
- Enhance Board Expertise: Ms. Lee encouraged boards to integrate ESG considerations into the nominating process and to recruit directors with ESG expertise. Further, she called on companies to offer existing directors training and education on ESG risks and to engage with outside ESG experts to provide guidance and advice.
- Linking Executive Compensation to ESG: Ms. Lee explicitly called on boards to link executive pay to ESG performance: “[i]n addition to helping achieve strategic goals related to issues such as reduced carbon emissions or increased diversity of the workforce, tying executive compensation to ESG metrics can offer an important way to deliver on a company’s commitment to issues that matter to investors and consumers.”
The Commissioner concluded by stating her belief that enhanced disclosure will allow investors to see if public pledges on ESG issues (such as those made during the 2020 racial justice protests) are backed up by corporate action. Ms. Lee served as acting chair following Jay Clayton’s departure and while Mr. Gensler’s nomination was being considered by the Senate. She is likely to continue to be the most vocal proponent of enhanced, prescriptive ESG and HCM disclosure rules. However, her public discussions have largely focused on climate risk disclosures while Chairman Gensler has tended to focus on human capital disclosures.
