Over the past couple of years, the SEC has taken a few small steps toward “disclosure reform” – with its 2018 “Disclosure Update & Simplification” and 2019 “Fast Act Modernization” amendments – as well as with its more recent proposal to modernize Items 101, 103 and 105 of Reg S-K. Although the most recent proposal drew thousands of comments – including from Big Yoga! – none of the recent or anticipated rule changes would overhaul ESG risk disclosure in the way that some investors say they want.
One of the main objections to even considering rules on this topic is that the info wouldn’t be material. To get a sense of who shares that view, a recent study published in the Villanova Law Review takes a closer look at the comment letters submitted in response to the SEC’s 2016 Concept Release – apparently there were 25,000 comments but only 375 “unique” responses. Here’s an excerpt:
The findings here confirm that concerns about investors’ disclosure overload are overblown and indeed, outdated. While many investors support some streamlining of risk-related disclosure, most investor comments focus on the under-disclosure of material information, not the reverse.
The empirical results discussed in Part III below confirm that respondents’ support for, or opposition to, ESG disclosure reform has less to do with ESG and more to do with their underlying views on materiality, the value of prescriptive disclosure, and how satisfied they are with the current state of reporting.
At the same time, this study also finds a surprising level of agreement among respondents on a number of the SEC’s proposals to simplify risk-related disclosures, particularly with regard to market risk disclosures and MD&A.
What I found refreshing was that the study confirmed the SEC, investors and business community all agreed that risk disclosures are extensive but frequently generic and boilerplate – and there was general agreement for more principles-based disclosure. The study provides another entry point for conversations about ESG risk disclosure – e.g., consideration needs to be given to not only increased compliance costs that companies would incur with expanded disclosure but also costs to investors of under-disclosing material ESG information.
-Lynn Jokela, TheCorporateCounsel.net February 4, 2020
