Sharing the Story

Climate change and ESG have been topics of repeated conversations at the Commission. The Acting Chair, for example, directed the Division of Corporation Finance to consider the issues. The Division of Enforcement formed a task force. There were others. Clearly many are interested in the topics.

Commissioner Hester Peirce has now joined the discussion. In remarks titled “Rethinking Global ESG Metrics,” published on the agency website April 14, 2021 (here) and earlier in Eurofi Magazine, the Commissioner suggests that we “rethink the path we are taking before it is too late.”

What does “too late” mean? It begins with the “unassailable” conclusion that “prosperity alone is not a sufficient measure of a society’s progress . . .” This is because, according to Ms. Peirce, the “challenge we face in addressing the ever-increasing number of issues underlying E,S, and G is daunting. The task before us is to find a way to bring about lasting, positive change to our countries on a range of issues without sacrificing in the process the very means by which so many lives have been enriched and bettered.”

From this foundation the question is broached: “In the United States, the idea of enlisting the securities laws to achieve ESG objectives is gaining traction among activists and policy elites with a particular emphasis on requiring disclosures of specific ESG metrics.” This results in a variety of ideas and metrics, a kind of ESG smorgasbord.

While this all sounds good the Commissioner posits, it has consequences that may be far reaching and not necessarily desirable. Indeed, this leads to “[h]ampering the ability of the markets to collect, process, disseminate, and respond to price signals by boxing them in with preset, government-articulated metrics . . . .” This may stifle innovation and end with a failure to address the critical questions.

Ultimately, the process could lead to the adoption of the “European concept of ‘double materiality’ [which] has no analogue in our regulatory scheme . . .” according to the Commissioner. That of course is a departure from U.S. traditions; it is not responsive or helpful to shareholders. Since the basis of the U.S. disclosure system is the shareholder, it is time to rethink this path “before it is too late” the Commissioner concludes.


No doubt the questions about the environment, ESG and disclosure are being careful consideration by the Commissioners and the senior staff who have remained with the agency through its transition to the arrival of newly confirmed Chairman Gensler. A review of comments made in recent weeks by various Commissioners and staff members paints a daunting picture of how to craft the appropriate disclosure in view of a landscape littered with a variety of environmental issues and ESG metrics. That picture, of course, is the byproduct of the many substantive discussions on these issues which have been and are taking place around the globe.

Does this mean that the SEC should do nothing lest it pick the wrong metrics and ideas? If the only solution were a kind of blindman’s bluff to creating disclosure standards, perhaps.

It is not. The solution is to return to the basic premise that has driven the federal securities laws from the beginning – disclosure. The foundation of the federal securities laws began with, and continues to be, the idea that the company tells its shareholders what it is doing with their money. The idea behind MD&A, for example, is to put the shareholders in the chair of the board and CEO so they can see not just where the enterprise has been or is, but where it wants to go. That is not picking and choosing by regulators – a kind of state corporation law substantive approach – but the kind of disclosure that has fueled the U.S capital markets since the 1930s. It is never too late for the company to share its story with those who have invested in it.

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