SEC Commissioner Uyeda Questions Whether ESG Investing Is Sustainable

SEC Commissioner Mark T. Uyeda questioned the long-term sustainability of ESG-focused investing given widespread disagreement and inconsistencies on core concepts across the industry.

In remarks at the 2022 Cato Summit on Financial Regulation, Mr. Uyeda said that determining whether ESG investing provides a net benefit is difficult because of the inconsistent criteria used by various ratings agencies. He highlighted a study that found a 54 percent correlation among the ratings of six prominent ESG ratings firms, compared to a 99 percent correlation among similar credit ratings agencies. He said that regardless of whether any benefit is provided, there is a significant cost involved, whether in the form of disclosure or other costs associated with positioning a company to be ESG-friendly. Mr. Uyeda urged market participants to take a step back and evaluate whether the benefits from ESG investing outweigh the costs.

Additionally, Mr. Uyeda expressed concern that ESG investing may interfere with asset managers' voting decisions and may limit an asset manager's eligibility to report under an applicable Schedule 13G. He questioned whether voting against a certain board director because that company's ESG practices do not match the asset manager's policies constitutes an attempt to change or influence control of the company. Even if that is not the case, he said that the SEC should consider whether the disclosure requirements for an asset manager's voting decision should be revisited.

Mr. Uyeda said that the SEC should evaluate whether its rules are keeping pace with new trends, enforce them if so and, if not, consider whether they should be updated.