Mandatory ESG Disclosure: Coming to an SEC Filing Near You?
Last week, the House Financial Services Committee debated five draft bills that would require companies to disclose information about climate change risk, political contributions and other ESG topics (you can also watch this week’s committee markup). A Davis Polk blog summarizes the hearing:
The committee memorandum prepared by the majority staff prior to the hearing stated that “investors have increasingly been demanding more and better disclosure of ESG information from public companies.” The target for improving this disclosure has been the SEC, which received an October 2018 petition from a coalition of investment managers, public pension funds and non-profit organizations requesting that the agency develop a robust ESG disclosure framework. Representative Juan Vargas (D-CA) noted in his remarks that this petition was the impetus for his draft legislation, ESG Disclosure Simplification Act of 2019, one of the bills considered at the hearing.
Several committee members on both sides of the aisle noted that, as interest in ESG disclosure rises, some public companies have responded by voluntarily adding these types of issues to their reporting efforts. However, debate ensued when considering that the draft bills would mandate this type of disclosure for all public companies. Issues raised during the question and answer period included:
– Whether mandated disclosure is necessary given current voluntary disclosure practices;
– The potential increased regulatory burden of these disclosures, which could negatively impact U.S. IPO markets; and
– Whether ESG issues qualify as material information for investors.
A column from Bloomberg’s Matt Levine points out that advice to quantify & disclose climate change risks might be something that companies hear from management gurus – and certainly some of their investors. But that has a different ring than an SEC mandate – especially if the underlying goal is to “solve climate change through the mechanism of corporate disclosure.” If regulating through securities laws ends up being our best hope to solve big problems, yikes – but at least we have a lot of thoughtful people in the field. And some even think a uniform ESG disclosure framework would help companies.
-Liz Dunshee, TheCorporateCounsel.net July 18, 2019
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