SEC Commissioner Peirce Cautions against Prescribed ESG Metrics

SEC Commissioner Hester Peirce cautioned against "build[ing] a neat set of ESG (environmental, social and governance metrics) metrics that then get incorporated into a whole array of financial transactions." At an ISDA Derivatives Forum, Commissioner Peirce addressed issues that await new SEC Chair Gary Gensler, highlighting ESG, the regulation of security based swaps and expanded access to the capital markets.

Ms. Peirce said that ESG metrics, designed by the SEC, could have the potential to "mislead." She acknowledged that issuers that were able to obtain a high ESG score might obtain an "immediate reputational benefit," but warned that a focus on such metrics could undermine a firm where the firm was acting for an "illusory short-term reputational boost."

Commissioner Peirce also reported that the SEC's regulation of security-based swaps was about to come online and, accordingly, there was a need not only for firms to get their houses in order, but also for countries seeking substituted compliance to finish their applications "as soon as possible." She noted that the SEC had issued a substituted compliance order for Germany and was working on orders for France and the United Kingdom.

Commissioner Peirce also addressed the recent events concerning GameStop and Archegos Capital Management. She indicated that the SEC was looking at the issues, but said the SEC should be looking to expand access to capital markets for a broader range of investors.