Money in hands with leaf growing

Amid stepping up efforts to address global warming among a host of other ESG issues, the U.S. Securities and Exchange Commission (SEC) is seeking input on disclosure requirements for public companies.

In a speech at the Center for American Progress in Washington, D.C., acting chair of the SEC, Allison Herren Lee, noted that the rise of ESG considerations for investors in recent years is unprecedented.

“Not only have we seen a tremendous shift in capital towards ESG and sustainable investment strategies, but ESG risks and metrics now underpin many traditional investment analyses on investments of all types,” she said.

Since climate risks and ESG issues are becoming increasingly important to investors and regulators, voluntary disclosure alone is not adequate, Herren Lee suggested.

“Not all companies do or will disclose without a mandatory framework, raising the cost, or resulting in the misallocation, of capital,” she said, adding that, “there are real questions about reliability and level of assurance for the disclosures that do exist.”

To start addressing that issue, SEC staff are reviewing the adequacy of compliance with existing guidance on climate-risk disclosure, and Herren Lee has issued a statement requesting public comment on climate disclosure.

There’s a long list of “important questions” that must be answered, she said, which included questions around “what data and metrics are most useful and cut across industries.” Also part of the list are queries about what can be learned from voluntary frameworks already in use as well as how it might be possible to design a disclosure regime that “is sufficiently flexible” as markets and science evolve.

Alongside climate risk, Herren Lee also indicated that there’s a need for a comprehensive ESG disclosure framework to cover issues such as workforce diversity, board diversity and political spending disclosure.

And, she’s directed SEC staff to review their approach to shareholder proposals, with the goal of increasing the number of well-designed proposals on shareholder proxy ballots.

“This could involve reversing last year’s mistaken decision to bar proponents from working together […] It could also involve reaffirming that proposals cannot be excluded if they concern socially significant issues, such as climate change, just because they may include components that could otherwise be viewed as ‘ordinary business’,” she said.

At the same time, the SEC is examining ways to improve proxy voting.

Apart from ESG issues, Herren Lee also said that there are a number of other retail investor protection issues that must be addressed, including best interest standards for brokers, the rise of private markets and equity market structure reforms.

“These initiatives are mutually reinforcing: none of these efforts will succeed unless retail investors can have confidence that our markets are safe and secure for them to invest their families’ economic futures,” she said.