November 1, 2022

SEC Commissioner Crenshaw Defends ESG Disclosure Proposal

Steven Lofchie Commentary by Steven Lofchie

SEC Commissioner Caroline A. Crenshaw defended the SEC's ESG disclosure proposal, calling it consistent with other disclosure requirements proposed by the SEC and responsive to the evolving demands of investors.

In remarks at the ECGI Responsible Capitalism Summit, Ms. Crenshaw said that the practice of proposing rules to require new disclosures based on market trends and investors demands is a well-established practice consistent with the SEC's mission. She said that the proposed rulemaking to require ESG-related disclosure was not a rushed decision, but rather a response to decades of market observations and changing investor demands. Ms. Crenshaw said that investors deserve as much available information as possible to make investment decisions, and many of today's investors consider ESG factors in their decision-making process.

Ms. Crenshaw argued that the proposal does not force companies into making environmentally friendly business decisions, nor does it seek to regulate businesses' environmental policies. She said that the proposal addresses gaps in disclosure in the current voluntary climate risk reporting regime. Additionally, she said that many companies have already begun including ESG-related disclosure and implementing ESG investment strategies and that the proposal would standardize such disclosure in order to ensure that the information provided to the public is consistent and accurate.

Ms. Crenshaw said that the proposal went through all of the proper rulemaking stages and that the SEC is currently reviewing the extensive feedback received on the proposal. She emphasized that the SEC's ESG-related disclosure proposal is just another step in the agency's "continuous disclosure system."

Commentary

It seems inevitable that any ESG disclosure requirements imposed by the SEC will be challenged on at least three grounds: (i) authority under the statute to impose disclosure requirements that are not based on financial materiality, (ii) compliance with the Administrative Procedure Act and (iii) failure to conduct a sufficient cost-benefit analysis. SEC Commissioners Mark T. Uyeda and Hester M. Peirce have expressed not only skepticism as to the disclosure requirement, but more importantly, as to the rule making process and the SEC's jurisdiction. Ms. Crenshaw's speech appears to be laying the groundwork for defense on these challenges.

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