Published on Jun 29th, 2021 |

 

Vigilant Insights | SEC Release

 

On June 22nd, 2021, the SEC posted a speech regarding ESG Rules and if the SEC will make them sustainable.

The three sections covered in the speech were:

  1. What’s Missing?
  2. Adding New “E” and “S” Resources at the SEC.
  3. Third-Party Standard-Setters.

Commissioner Elad L. Roisman expressed the increase in demand and communication towards ESG matters and how it would be discussed 8 out of 40 times (20%) on their conference’s three-day agenda. Also, he notes that the Commission is increasing their attention on ESG matters too with the intention to propose new disclosure requirements relating to climate change and human capital.

The Commissioner noted that he will answer the following questions below:

  1. What precise items of “E,” “S,” and “G” information are investors not getting that are material to making informed investment decisions?
  2. If we were able to identify the information investors need, how would the SEC come up with “E” and “S” disclosure requirements—now, and on an ongoing basis? What expertise do we need?
  3. If the SEC were to incorporate the work of external standard-setters with respect to new ESG disclosure requirements: how would the agency oversee them—in terms of governance, funding, and substantive work product—on an ongoing basis? And what kind of new infrastructure would be required inside the SEC and at the standard-setters themselves?

To learn more about these questions being answered see the three sections that were discussed below throughout the speech.

man and woman talking about services offered

3 Sections Discussed in the Speech:

  1. What’s Missing?
    • Suggestions are overflowing for the Commission to act on standardized disclosures for ESG.
    • The Commission ideally wants to provide one list of ESG disclosures for companies, but they feel they cannot execute on that at this time.
      • Since there are different objectives and uses of information the Commission worries about implementing a static list of ESG disclosure requirements that would displace engagement and freeze disclosures.
      • It is not clear yet that there is enough material information for new line-item ESG disclosures as they want to implement rules that are relevant for multiple years.
      • Once more clarity becomes relevant on missing ESG disclosures, the SEC can then begin implementing their own Rules.
    • The Commission wants to stay true to their “historic” approach having information that is “material to an investment decision.”
      • The focus for the SEC is on the protection of investors and the public interest for materiality.
    • The SEC is not going to copy ESG requirements of the international standards as they have seen many of the U.S. financial market participants starting to follow those standards.
    • They are going to consider different viewpoints regarding policy-making as institutional investors and asset managers can have conflicts of interest.
  2. Adding New “E” and “S” Resources at the SEC
    • The Commission needs to acquire and maintain the expertise to continually develop and oversee disclosures specifically related to the Environmental (“E”) and Social (“S”) information.
    • There is an additional concern and question on how and how often the Commission would have to update these standards as they continue to rapidly develop.
  3. Third-Party Standard Setters
    • While there have been recommendations to the Commission that they should use external third parties to maintain updated ESG disclosure standards, they make it clear acknowledging that this is not a “plug and play” solution.
    • There are lots of consideration and resources for the Commission if they were to use third parties such as how an entity should be funded, governed, and staffed to serve the Commission’s overall objectives.
    • The Commission also made it clear that if they were to work with a third party that they want a clear standard-setter, or setters to rely on for serving their objectives.

The goal of this speech was to present and raise awareness to all recently considered questions and concerns. This will be beneficial to the Commission in their complex task ahead. The Commissioner made sure to state that his mind is not concluded on any of these issues, and instead, he is motivated to learn more and engage with anyone to do so.

Want to view the full SEC Release? Click HERE to learn more.

 

Miss out on Vigilant and Paul Hastings, LLP’s ESG Investing Webinar?

For those that could not attend or did not register, Vigilant provided a quick recap video to help you gather a better understanding around ESG. To view the recap video click the image below!

 

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