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SEC Urged by Advisory Panel to Tackle ESG Disclosures

May 21, 2020, 8:08 PM

The SEC’s Investor Advisory Committee says the “time has come” for the agency to consider requirements for certain environmental, social, and governance factors in public company disclosures.

The panel on Thursday approved a 10-page recommendation for the agency to consider whether ESG matters should be folded into the existing disclosure regime for public companies.

It’s a significant nudge for the SEC, as it’s coming from an internal advisory committee created specifically to address and relay concerns of investors in U.S. companies.

ESG-related disclosures have been batted around the SEC for years, and advocates point to the coronavirus pandemic as an example of why the commission should act sooner rather than later.

Investors and markets “would be best served if the SEC does provide some guidance, information, or whatever it might be, after looking into this in more detail,” committee member and author of the recommendation, Allison Bennington, said during the panel’s virtual meeting.

Bennington said other countries are beginning to take steps toward addressing uniform ESG disclosure requirements, and that a “patchwork approach” in the U.S. is potentially putting securities issuers at a disadvantage.

A host of immaterial ESG information is making it into corporate disclosures, and companies have needed to determine on their own what data should be included, she said.

The recommendation calls for a so-called principles-based materiality standard, rather than specific disclosure criteria. The SEC should reach out to investors and issuers to “evaluate multiple options or approaches to updating” reporting rules on material ESG issues, the committee said.

A few panel members voted against the recommendation and questioned the SEC’s authority to mandate certain ESG disclosures.

Stephen Holmes, general partner emeritus at InterWest Partners, said ESG reporting and disclosures would be best addressed by private parties, not the SEC. The information companies could be required to reveal might not end up being as beneficial as some think, he added.

“I don’t think many people would benefit from what would probably be a massive amount of boiler plate legalese or a master manual with lots of boxes to be checked,” he said during the virtual meeting.

To contact the reporter on this story: Jacob Rund in Washington at jrund@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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