In gearing up for the effort to propose new rules regarding ESG disclosures, SEC commissioners have begun to discuss their views publicly, provide some insight into how the rules process may unfold, and what may be ultimately included. This was on display last week, with Chairman Gensler
delivering a speech highlighting his push for a prescriptive approach to ESG disclosures while Commissioner Elad Roisman
gave a speech on his doubts regarding the SEC’s ability to do so in a useful way.
Chairman Gensler has made ESG risks a central theme in his early tenure, focusing primarily on climate, human capital metrics, and diversity and inclusion. In his speech at London City Week (a financial industry event in the UK), Gensler stated that he instructed the SEC staff to put together recommendations on mandatory company disclosures on climate risk and on human capital. Climate change risks commanded the bulk of this discussion, and it may indicate that such disclosures are the first priority. When discussing HCM disclosures, he highlighted specific metrics that have been discussed for some time, including:
- workforce turnover
- skills and development training
- compensation/benefits
- workforce demographics including diversity
- health and safety
Commissioner Roisman, who spoke a day earlier at the National Investor Relations Institute 2021 Virtual Conference, took a nuanced view in voicing his concerns, noting that companies and investors alike have a need for increased standardization. He expressed the need for the SEC to answer several questions before it proposes any new rules, including:
- Which specific ESG metrics/information are investors not getting that are material to making informed investment decisions?
- How would the SEC come up with “E” and “S” disclosure requirements?
- If the SEC were to incorporate the work of external standard-setters with respect to new ESG disclosure requirements: how would the agency oversee them—in terms of governance, funding, and substantive work product? Would the SEC and standard setters require new infrastructure to take on such a central role?
Commissioner Roisman expressed concern that the ESG market is evolving rapidly, making many metrics obsolete as the risks (both physical and financial) are better understood. The Center supports his hope that the SEC will look at how companies and investors have engaged on these issues over time, viable market solutions, and what information, if any, is missing from the many types of ESG disclosures companies are already providing. If the problem is one of standardization rather than content, it should be less necessary for the SEC to mandate a comprehensive list of prescriptive disclosures.
