The Congress, the SEC and NASAA have joined the chorus of investors and ESG-focused funds in seeking much greater disclosure of the entire suite of ESG concerns. A renewed pressure from government is not surprising given the politics of the current Administration.
The SEC has had guidance since 2010 relative to climate change, aimed at causing reporting companies to share risk and response perceptions. Trump chair Clayton, at the very end of his tenure last December, questioned the sufficiency of current regulation, and this February the Acting SEC Chair stated that it was the SEC’s duty to provide disclosure. Of course, the general overlay of the disclosure regime is that disclose must be made of any material risk, even if it is neither topical nor specifically addressed in SEC Rules or guidance. Company failures became more focused based on litigation against Exxon finding material misstatements in connection with the impact of climate on expected corporate action.
Reportedly (Jim Hamilton’s World of Securities Regulation), ESG Funds took in over $51B last year, so this is not a trivial segment of the marketplace, and the SEC does not even have guidance on what “ESG” encompasses. An SEC task force has been established to determine ESG policy, and it seems inevitable that proposed guidance, or specific Rule-making, will follow.
The House of Representatives, echoing NASAA proposals to the SEC, has pending a bill (H.R. 1277) which would compel registered issuers to disclose gender, racial, ethnic and veteran status of senior management and boards. Claims abound that diversity at the top results in better economic performance. While I have not seen what I consider to be clear statistical support for this proposition (it is possible for example that the company with better general management also has a propensity for diversity, which may be admirable but not causal of better economic performance), it is quite possible we will see SEC action in this arena also.
The SEC these days seems willing to set policy through disclosure regulation. I note that the SEC has an Office of Minority and Women Inclusion, and the Bill would encourage this Office to propose “best practices.” (I do not suggest that these developments are not positive, only that they reflect an activism that has been absent historically.)