Biden ESG Push Converges With Steps to Spur Competition (1)

Oct. 12, 2021, 10:00 AMUpdated: Oct. 12, 2021, 2:21 PM

ESG and antitrust issues are starting to converge as Democrats seek ways to boost competition, while pushing companies to become better corporate citizens.

The Securities and Exchange Commission recently received a left-leaning think tank’s recommendations to incorporate market power indicators, such as labor cost metrics and investment calculations, into a set of environmental, social, and governance disclosures that the agency is considering.

The Federal Trade Commission has shown signs that it’s changing the way it investigates companies’ market-power abuse by examining new standards in addition to the traditional scope of whether consumers have been harmed, sowing concerns from Sen. Mike Lee (R-Utah) and others that the agency is overreaching by examining ESG factors.

The SEC is not actively considering incorporating antitrust issues into its rulemaking agenda related to ESG. The FTC also hasn’t stated directly that ESG is a priority. But the agencies are exploring new ideas as the Biden administration continues to prioritize ESG as a policy priority and implements the president’s July executive order to all federal agencies to curb anti-competitive behavior.

“If investors came to us and said this is something we need, we should consider it,” Democratic SEC Commissioner Allison Lee told Bloomberg Law, referring to antitrust disclosures.

Investor Tool?

The proposal from the think tank, the Center for American Progress, wants the SEC to mandate corporate disclosures of statistical markers of competitive conditions that would help identify companies protected by barriers to entry and facing limited competitive pressure.

Some of those metrics are already available in SEC filings. But the new disclosures would contextualize those figures into ratios that signify out-sized profits driven by potentially anticompetitive behavior, according to the CAP’s plan.

Such disclosures would help socially conscious investors spot anticompetitive behavior, and the information could be shared with lawmakers and consumers, CAP said in the plan.

Marc Jarsulic, CAP’s chief economist who authored the report, said the recommendation aims to have standardized data for people to analyze.

At least some investors would use the antitrust disclosures, if they were required by the SEC, he said.

As You Sow, a shareholder advocacy group that pushes companies to be more socially responsible, would use such antitrust disclosures to help score corporate policies and practices, said Andrew Behar, the organization’s CEO.

Metrics about market power and competition could help investors better understand the competitive landscape, he said.

“As You Sow and the shareholders we represent believe that corporations need to disclose greater detail about their policies and practices to include material environmental, social, and governance” data, Behar said.

Jarsulic, a former SEC official, said he hopes SEC Chair Gary Gensler will bring up his antitrust disclosure plan with the newly formed White House Competition Council.

Gensler and FTC Chair Lina Khan are both members of the council, which convened for the first time last month.

A spokeswoman for Gensler declined to comment on CAP’s proposal.

Antitrust Risks

The SEC might not be the only agency delving into social issues that could be categorized as ESG topics.

The FTC, under Khan’s leadership, has taken steps to reshape the agency’s merger review process and authority to pursue cases of unfair competition.

In reviewing proposed mergers and acquisitions, FTC staff are already requesting information about how the deal would affect ESG policies, Vinson & Elkins LLP antitrust practice chair Darren Tucker told the agency’s commissioners during a Sept. 15 meeting. But how the FTC is using the details in its decision-making is unclear, he said.

Republican officials are uneasy about the agency’s shift toward what they say are social and ESG issues.

Sen. Lee, at an Oct. 6 Senate hearing, raised concerns about the FTC asking about ESG policies when talking to merging companies.

“In the first nine months of this administration, we’ve seen some disturbing trends in antitrust law,” Lee said at the hearing.

The FTC is not asking companies about their ESG policies, according to a statement from an agency spokesperson Tuesday. “Our focus is on factors that would indicate illegal harm to competition under antitrust laws,” the statement said.

At issue is the FTC’s interpretation of the consumer welfare standard in antitrust law, used by the agency to ensure companies’ anticompetitive behavior or deals don’t harm consumers, such as hiked prices or reduced product quality.

In a recent blog, the agency said it’s “seeking to ensure our merger reviews are more comprehensive and analytically rigorous.”

The agency’s “unduly narrow approach to merger review may have created blind spots and enabled unlawful consolidation,” according to the blog.

“To better identify and challenge the deals that will illegally harm competition, our second requests may factor in additional facets of market competition that may be impacted,” the blog said. “These factors may include, for example, how a proposed merger will affect labor markets, the cross-market effects of a transaction, and how the involvement of investment firms may affect market incentives to compete.”

Diana Moss, president of the American Antitrust Institute, said the consumer welfare standard may not be broad enough to accommodate ESG principles.

Considering “the environmental impact of a merger, for example, under the consumer welfare standard is highly, highly unlikely and not easily done without some sort of bigger legislative change coming out of Congress,” she said.

Mission Creep?

Republican commissioners at both the FTC and SEC have raised concerns about their respective agencies getting involved in ESG matters.

Republican FTC Commissioner Christine Wilson told lawmakers at a Sept. 28 House hearing that she doesn’t support expanding M&A investigations into social issues like unionization and the environment.

The SEC’s two Republican commissioners, Hester Peirce and Elad Roisman, also have issued warnings about their agency working on ESG issues.

Antitrust disclosures by companies, like other possible ESG reporting, must be useful to a reasonable investor under the materiality standard deployed by the SEC, Peirce said.

“If we abandon that objective standard to address antitrust concerns or otherwise serve the interests of non-investors, we risk weakening our capital markets and straying from our agency’s mission,” she said.

(updates with FTC statement in 23rd paragraph )

To contact the reporters on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com; Siri Bulusu in Washington at sbulusu@bloombergindustry.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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