Oct. 2, 2018
U.S. Senators, Investors, Securities Experts Call for Mandated Company Disclosure of Environmental, Social and Governance Information
The Rapid Growth of the $20 Trillion Sustainable Investing Industry Requires Greater Investor Protections
WASHINGTON, D.C. – The U.S. Securities and Exchange Commission (SEC) must create a standard set of rules requiring public companies to disclose environmental, social and governance (ESG) risks, a new petition for rulemaking filed at the SEC requested today. The petition was filed by a group of investors, state treasurers, public pension funds and unions – representing more than $5 trillion in assets under management – and securities law experts and foundations.
U.S. Sen. Sheldon Whitehouse (D-R.I.) joined the groups to urge the SEC to formulate new rules that would increase public awareness and mitigate growing investment risks around ESGs.
“Investors need a disclosure rulemaking so that they can understand the potential long-term performance and risks of public companies,” said U.S. Sen. Mark Warner (D-Va.) “The existing requirements fall short in a number of areas like human capital management, and other countries are moving ahead with their own requirements. I welcome this petition and join in the request for the SEC to develop an updated disclosure framework.”
For years, investors have called upon the SEC to require companies to disclose various types of ESG performance and risks – from climate, to human capital management, to political spending, to tax, to human rights, to gender pay ratios. Today, the growing consensus from investors is that ESG information plays a central role in their ability to evaluate companies’ long-term performance and risk management. In response, many companies already are already providing some of this information voluntarily. However, there are substantial problems with the nature, timing and extent of these voluntary disclosures. This makes it impossible for investors to compare companies, rely on the information, or ultimately, make smart investment decisions.
“With complete and comparable data, investors like Oregon would have apples to apples information to analyze risks to make more informed investment decisions. This makes our beneficiaries and ultimately our state more secure over time, as well as makes the portfolio more sustainable,” said Oregon State Treasurer Tobias Read. “We are investors for the long term, and need to ensure the long term viability of our portfolio. Our investments need to be positioned for future markets and future opportunities.”
In the U.S. and around the world, some companies are working to meet investor demand for ESG disclosure, but the insufficiency of today’s market-oriented response is clear. The quantity of sustainability reports, questionnaires and other self-help devices has grown, and many of the world’s most prominent investors and asset managers are incorporating ESG analyses into their investment decision-making and stewardship activities. Yet those same investors are speaking out to say that current reporting practices are insufficient to meet their investment-related needs and ensure America’s capital markets fully reflect the long-term performance and risk implications of these increasingly critical ESG issues.
“It is reasonable to believe that companies currently evaluate performance risk with regard to environmental impacts. Therefore, it also is reasonable to require companies to share this data with investors,” said Illinois State Treasurer Michael Frerichs. “Requiring this disclosure will level the playing field for everyone, especially between companies and investors. It also will lead to better planning, deeper risk assessments and greater profits.”
ESG information is relevant to investors and the SEC has clear statutory authority to require public companies to disclose information relevant to these areas of performance and risks to investors.
During a time of relentless attacks on shareholder rights and corporate transparency, this call for greater ESG transparency highlights the importance of providing more, rather than less, information and even greater voice and influence to shareholders and the public.
“Investors need more information to make smart choices,” said Lisa Gilbert, vice president of legislative affairs at Public Citizen. “The SEC must respond to this latest forceful demand, among many. If a company has strong public rhetoric, shareholders deserve to see if the company walks the walk – how well it treats its workers, where it plays in politics or how it reports its taxes. Shareholders have a right to evaluate if corporate choices are in sync with long-term interests.”
“When the SEC last examined the issue of ESG disclosure, in 1974, there were only two active mutual funds incorporating ESG data, holding $18.6 million,” said Cynthia Williams, professor at Osgoode Hall Law School at York University. “Today, a wide range of investors recognize the value of ESG data, from retail investors to the world’s largest asset managers. We trust that the SEC will embrace the challenge of providing guidance to America’s companies for how to meet the needs of these investors.”
“The SEC has historically drawn a distinction between ESG information and information that is material to investors from an economic perspective,” said Jill Fisch, distinguished professor of business law at the University of Pennsylvania Law School. “The petition takes the position, consistent with a growing consensus among both issuers and investors, that this distinction is outdated and that ESG information is properly incorporated into financial reporting.”
“The lack of comprehensive, comparable and reliable data hinders investor efforts to most effectively incorporate ESG information into investment decisions,” said Lisa Woll, CEO of U.S. SIF. “ESG information is material to investors, and the SEC has clear statutory authority to require public companies to disclose these risks. We believe public companies should be required to report a comprehensive, uniform set of environmental, social and governance indicators. U.S. SIF has called for robust ESG disclosure reporting since 2009. Meaningful disclosure reporting is beneficial to a wide array of stakeholders.”
“We believe corporate involvement in secret, dark money political spending can pose a significant threat to shareholder value,” said Patrick Doherty, director of corporate governance for New York State Comptroller Thomas DiNapoli, who is trustee of the New York State Common Retirement Fund. “We’ve actively pressed our portfolio companies for complete transparency in this area in order to prevent abuses that can harm them and their shareholders.”
Read the petition here.
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