In their remarks before the SEC’s Asset Management Advisory Committee (AMAC) at last week’s meeting, SEC Commissioners Roisman, Peirce, and Crenshaw took the opportunity to express their views on the call for mandatory ESG disclosure in conjunction with the ESG Subcommittee’s Potential Recommendations to the AMAC (reported on here – See “Asset Management Advisory Committee Addresses ESG”).
Most notably, SEC Commissioner Roisman raised the questions of potential SEC oversight of any third-party standard setters to the extent any SEC ESG disclosure requirements use them to determine materiality (as suggested by ESG Subcommittee), as well as potential oversight of ESG index providers and rating agencies that many ESG funds and investment products rely upon. He also asked corporate panelists to consider whether ESG disclosures (if a new requirement were to be imposed) should be furnished rather than filed and accompanied by a safe harbor, and posed a series of well-considered questions to asset managers aimed at better understanding which ESG information they deem to be material and why.
SEC Commissioner Peirce questioned whether the Committee was overly focused on a few issues (specifically, ESG, D&I, and private investments) at the expense of its broader remit, and whether and why materiality needs to be redefined for ESG risks as compared with the other types of material risks issuers are already required to disclose. She noted her willingness to consider specific ESG metrics that are material to all issuers across industries but observed that the discussion about ESG standards generally tends to lack precision and clarity, thus eluding the key notions of company-specific relevance and materiality.
SEC Commissioner Crenshaw articulated her support for a scheme that elicits consistent, comparable, reliable, and coherent ESG disclosures for investors, who increasingly are using this type of information to make investment and capital allocation decisions. She expressed interest in better understanding what information should be disclosed, what information should quantified and subject to metric-based standards, which standards should be used, and whether disclosure requirements should be industry-specific.
Further to last week’s Society Alert (“Asset Management”) and her December 2018 remarks before the SEC Investor Advisory Committee, ESG Subcommittee update panelist, Society member Yafit Cohn’s prepared remarks suggested five fundamental principles to guide the SEC’s approach to ESG disclosure. She shared that any new ESG disclosure requirements should be: (i) aligned with shareholder value in lieu of values espoused by special interest groups; (ii) rooted in materiality, as defined by the U.S. Supreme Court; (iii) principles-based (rather than prescriptive); (iv) accompanied by a safe harbor; and (v) promulgated through the proper regulatory process pursuant to the APA. Yafit, the Society’s Sustainability Practices Committee Chair, appeared on the panel in her capacity as Vice President, Chief Sustainability Officer and Group General Counsel of The Travelers Companies.
SEC Acting Chair Lee’s pre-recorded opening remarks will be accessible when the webcast archive is posted on the AMAC webpage.
See these posts from Davis Polk and Cooley and “SEC Panelists Trade Blows On ESG Disclosure Plan” (Law360).
This post first appeared in the weekly Society Alert!