SEC Commissioner Peirce Warns Again Against ESG Disclosure Requirements
The new Chairman at the Securities and Exchange Commission has recently warmed up to environmental, social and governance disclosure requirements for publicly traded companies.
But one SEC commissioner on Tuesday revived her concerns that those would go beyond the agency’s remit, and that large asset managers, lawyers, consultants, ESG rating agencies, and even the corporate issuers of securities could exploit the rule to boost profit at the expense of investors.
Commissioner Hester Peirce, who has been a vocal opponent of a single set of ESG disclosure standards, told a Brookings Institution panel that Congress, the states, or civic organizations should tackle companies about their willingness to share their ESG agencies, rather than her federal agency. The SEC will likely get manipulated by money-seeking interests if it attempts to craft ESG disclosure requirements, she said.
“ESG rulemaking is high-stakes because so many people stand to gain from it,” Peirce said. “Any SEC rule can create money-making opportunities, but the potential breadth and novelty of ESG issues makes an ESG rule a particularly lucrative one, and thus may make it hard for us to get objective input.”
Her comments follow remarks from SEC Chairman Gary Gensler, who was sworn in in April and said last month that his agency is evaluating plans to start requiring public companies to publish data on greenhouse gas emissions, workplace diversity, and other issues.
“This builds on past agency work and could include a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety,” Gensler told a London audience in June, according to media reports.
Peirce, who has said ESG stands for “enabling shareholder graft,” has fought to keep sustainability requirements out of the SEC’s remit under Gensler’s predecessors as well and also broadly condemned disclosure requirements as being ineffective.
ESG consultants and raters “are now making a lot of money in producing, seeking to standardize, and assessing voluntary disclosure have an incentive to ensure that whatever rule gets written keeps that money flowing,” Peirce said on Tuesday.
“The more metrics any ESG rule mandates…the more demand it will create for consultants, auditors, lawyers, sustainability professionals, and other rent seekers,” she said.
“Issuers too have a shot at profiting from our ESG rules,” Peirce argued, since they will use and try to shape the disclosure requirements so they draw in more investors and lenders for their entities.
The companies “may make joint cause with publicly popular issue advocacy groups,” she said, giving the example of an electric car manufacturer funding environmental groups to push for disclosures around how much of rental car companies’ fleets are electric.
Asset managers will benefit from a diminished amount of “legwork they have to do to get the information they want for their ESG funds,” Peirce said.
Peirce added that fund managers were not likely to pass on the benefits to investors by lowering fees on ESG funds as a result of the reduced due diligence.
Her remarks were contested by other panelists, including Andrew Lowenthal, a Managed Funds Association executive vice president, and Ty Gellasch, a fellow at the Duke Global Financial Markets Center and Healthy Markets Association’s executive director. They argued that standardized ESG disclosures were necessary to help investors make informed decisions, and cited their effectiveness in European markets.
“We have the largest capital markets, we have the deepest capital markets, we must lead in this space,” Lowenthal said. “In order to preserve that for ourselves and for our own investing populace and for our own issuers and it’s very important we believe ultimately that the SEC retain control of that.”
Gellasch said international investors are weary of making some U.S. investments without disclosures backed by a regulator.
“One of the things we’re seeing is large international investors are actually saying, ‘We are shutting U.S. investment to the extent that we cannot get disclosure related to the risks to assess our portfolios,’” Gellasch said.