SEC Commissioner Peirce Says ESG Distracts from Maximizing Financial Value

SEC Commissioner Hester M. Peirce criticized asset managers, companies and governments for "embracing ESG [environmental, social, and governance] without considering the long-term consequences to, respectively, their clients, shareholders, and citizens." 

In remarks at the Annual US-Central and Eastern European Connection Weekend Conference, Ms. Peirce argued that the "difficulty of determining whether and how ESG links to financial value" makes it easier for asset managers, companies and governments to "do things in the name of ESG that they otherwise could not get away with doing." Ms. Peirce argued that ESG commitments interfere with asset managers' focus on maximizing financial returns for their investors. She said that ESG goals interfere with companies' focus on maximizing the long-term value of the corporation and conflict with shareholder interests. Ms. Peirce argued that integrating ESG data collection efforts "not only changes how companies operate day-to-day, but adds inflexibility to corporate decision-making."

Ms. Peirce claimed that securities regulators have been mandating "increasingly granular ESG disclosures" which diverts boards' and managers' attention away from maximizing corporate value objectives toward government objective. She argued that securities regulators have been hiding behind socially and politically contentious claims linked to financial returns to demand these granular disclosures. She argued that these mandates often "lack a traditional materiality trigger" and are becoming "increasingly attenuated" from metrics a company would otherwise use to manage its business. Further, she argued that detailed ESG mandates "provide the government with indirect control of corporate resource allocation decisions.'"

Ms. Peirce offered ways to address ESG constraint on economic growth. First, she said "we can reject the highly prescriptive ESG frameworks that so many jurisdictions are imposing on companies today in favor of a return to a principles-based disclosure regime that does not isolate and elevate an issue simply because it bears the ESG label." Second, asset managers, companies and governments must explain the link any particular ESG objective has to financial value and that "obtaining the ESG objective comes at a financial cost."