October 18, 2022

SEC Commissioner Lizárraga Says ESG Disclosure Proposals Respond to Investor Demand

Steven Lofchie Commentary by Steven Lofchie

SEC Commissioner Jaime Lizárraga highlighted rulemakings on climate and ESG disclosure that address investor demand for useful qualitative and quantitative information about issuers and funds.

In remarks at the 2022 Future of ESG Data conference, Mr. Lizárraga argued that the SEC must keep pace with the changing needs of investors, who are currently focused on ESG and sustainable investment metrics.

The rulemakings concern (i) climate risk disclosures, (ii) fund and investment adviser ESG disclosures and (iii) ESG-related fund names. Mr. Lizárraga said that the proposals will give investors qualitative and quantitative metrics that provide for a high degree of comparability across issuers and funds. He said that the proposals will assist investors in differentiating between market participants on the basis of ESG-related claims, leading to more informationally sound investing decisions. Mr. Lizárraga reported that the SEC is in the process of reviewing thousands of comments on these proposals.


If the SEC's case is that there is tremendous investor demand for greenhouse gas information, then the question is, at what price? The production of this information will be a significant tax on public issuers, which will be paid by shareholders. Presumably, the argument is that this information will allow public investors to better allocate their capital, but investors will have to make significantly better allocation decisions in order to compensate investors for the cost of producing the information. Do investors as a group want to pay this tax?

Somewhat ironically, energy stocks were by far the best performer in stock market in 2021 with a total return of 53.3%. So if the underlying purpose of these regulations is to discourage investments in energy, that may not be good for retail investors.

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