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SEC Commissioners Peirce and Roisman Challenge ESG Focus

Steven Lofchie Commentary by Steven Lofchie
"It is entirely reasonable for a person to feel that climate change deserves immediate attention from lawmakers and still question whether the SEC mandating new disclosures from U.S. public companies is an appropriate step for the agency."
SEC Commissioner Elad L. Roisman
"It is entirely reasonable for a person to feel that climate change deserves immediate attention from lawmakers and still question whether the SEC mandating new disclosures from U.S. public companies is an appropriate step for the agency."
SEC Commissioner Elad L. Roisman

At an SEC Asset Management Advisory Committee ("AMAC") meeting, SEC Commissioners Hester M. Peirce and Elad L. Roisman questioned the advisory committee's focus on environmental, social and governance ("ESG") concerns.

Ms. Peirce questioned whether the focus of AMAC - which has been dominated by ESG, diversity and inclusion, and private investments - should be broadened. Ms. Peirce suggested the inclusion of issues such as: the balance between client convenience and cybersecurity risks; the challenges of returning to in-person work; the modernization of custody and cross-trading rules; renewed retail interest in trading individual stocks; shortening the settlement cycle; money market funds; digital assets; and the special-purpose acquisition company trend.

Ms. Peirce asserted that to achieve broad ESG disclosure that is material to every issuer in every industry, the SEC would have to "reimagine materiality." Ms. Peirce stated that undermining materiality to accommodate ESG would only harm investors, giving them "a false sense of confidence in standards that are subjective, shifting, and sometimes even senseless."

On a similar note, SEC Commissioner Elad L. Roisman asked AMAC to consider, among others, the following questions:

  • How has AMAC gauged investors' objectives, which may fall outside risk/return alone?
  • What specific ESG information does AMAC need from issuers?
  • How have European disclosure mandates factored in?
  • Why is comparability of issuers' disclosure so important if the SEC does not demand "perfect comparability" across all material information?

Commentary

Steven Lofchie
Steven Lofchie

Since assuming office, SEC Acting Chair Allison Herren Lee has not only focused to an unusual extent on ESG matters, she has also taken unusual actions, including (i) establishing a special enforcement unit to focus on ESG matters, although it is not even clear whether there are rules in this regard to break, much less that they have been broken, and (ii) suggesting that the SEC should involve itself in political spending disclosures as to ESG, which might raise constitutional questions.

The points expressed by Commissioners Roisman and Peirce may be briefly summarized as such:

  • The SEC's mission is quite a broad one and a singular focus on ESG will detract from the great bulk of that mission;
  • ESG is a largely amorphous term; and
  • However the set of concerns that comprise ESG is defined, the relevance of those concerns will differ very significantly as between different issuers and industries, such that a one-size-fits-all set of ESG disclosures seems impractical.

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Primary Sources

  1. SEC Press Release: SEC Issues Agenda for March 19 Meeting of the Asset Management Advisory Committee
  2. SEC Statement, Hester M. Peirce: Remarks at Asset Management Advisory Committee Meeting
  3. SEC Speech, Elad L. Roisman: An Honest Conversation about ESG Regulation
  4. SEC Statement, Caroline A. Crenshaw: Remarks at Asset Management Advisory Committee Meeting
  5. SEC Statement, Sarah ten Siethoff: Remarks at the March 19, 2021 Meeting of the Asset Management Advisory Committee

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Tags

Individuals
Elad Roisman , Hester Peirce
Regulated Products
ESG Digital Assets
Body of Law
Securities Law
Jurisdiction
US - Federal
Organization
SEC