On Tuesday, the Brookings Institution held a panel discussion regarding the role that the SEC should play in ESG investing. In describing the event, Brookings said that ESG issues “continue to climb in importance for many investors and policy makers. What role should public policy and financial regulation play in response to ESG concerns? These questions are of particular importance for the [SEC] tasked with protecting America’s capital markets and American investors.” You might have assumed that Brookings would have invited as the speaker one of the SEC’s fervent advocates for more prescriptive ESG disclosure regulation, such as Commissioner Allison Herren Lee. But instead, Brookings invited the contrarian Commissioner Hester Peirce as the SEC representative. As an opponent of the SEC’s venturing into the mandatory ESG metrics disclosure business, Peirce came prepared to engage, armed with a voluminous speech consisting of 10 theses, footnoted to the hilt. Recognizing that “whether and how we will move toward a more prescriptive ESG disclosure framework” is now front and center on the SEC’s current agenda, Peirce offered ten theses “without much sugar-coating” in the hopes of catalyzing “a textured conversation about the complexities and consequences of a potential ESG rulemaking.”
In a recent speech, SEC Chair Gary Gensler conveyed a sense of full steam ahead with regard to mandatory disclosure requirements about climate and human capital. (See this PubCo post.) The day before, Commissioner Elad Roisman also addressed potential ESG disclosure requirements, but from quite a different perspective—concern. While he understands that there is a demand for consistent standardized ESG disclosure, especially about climate, is it premature to attempt to standardize, he wonders? To what extent does the SEC have a legislative mandate to construct ESG disclosure rules? And how is the SEC—a bunch of lawyers and accountants and economists—ever going to craft and oversee ESG regulation effectively? When you get down to it, his question is this: Is the SEC the right agency for rulemaking about ESG (particularly climate) disclosure?
How often does this happen? SEC Commissioners Allison Lee (D) and Elad Roisman (R) on the same page? Ok, well, maybe they’re just on the same fragment of a sentence, but still…. Bloomberg is reporting that, at the WSJ’s CFO Network Summit, Lee expressed her view that companies’ compliance with any new SEC disclosure requirements on ESG should not be subject to “gotcha” enforcement, instead indicating that companies will be cut plenty of slack in experimenting with any new ESG rules that the SEC may adopt. She also offered several suggestions that, interestingly, were quite consistent with suggestions made last week by Roisman to mitigate the cost of compliance.
In remarks yesterday before the ESG Board Forum, Putting the Electric Cart before the Horse: Addressing Inevitable Costs of a New ESG Disclosure Regime, SEC Commissioner Elad Roisman weighed in with his views on mandatory prescriptive ESG requirements and the likely associated costs. As he has indicated before, he’s not really keen on the idea, particularly the environmental and social components of potential requirements. As a general matter, while investors want to see comparable standardized environmental data, in his view, standardization of that type of information is really hard to do; some of it “is inherently imprecise, relies on underlying assumptions that continually evolve, and can be reasonably calculated in different ways. And ultimately, unless this information can meaningfully inform an investment decision, it is at best not useful and at worst misleading.” But, if a new regulatory regime requiring ESG disclosure is adopted—and it certainly looks that way— he has some ideas for ways to make it less costly for companies to comply.
As reported by Bloomberg, Acting Corp Fin Director John Coates told a webinar audience that mandatory ESG disclosures were “overdue,” and that the SEC was moving quickly on related rulemaking. In the webinar, sponsored by NYU’s Institute of Accounting Research and the Institute for Corporate Governance & Finance, Coates said that he expects the SEC to soon be in a position to review and consider staff proposals for mandatory prescriptive rules on ESG addressing both general and industry-specific requirements. These actions are expected to be the SEC’s most significant action on climate since the 2010 guidance. (See this PubCo post.)