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Republicans, SEC Commissioner Slam Watchdog’s ESG Disclosure Drive

By Alex Padalka June 7, 2021

The Securities and Exchange Commission’s aggressive drive to require public companies to disclose environmental, social and governance-related issues is misguided, according to several Republican lawmakers.

In February, SEC acting chair Allison Herren Lee directed the regulator’s division of corporation finance to enhance its focus on climate-related disclosure in public company filings. The same month, the regulator created a new policy advisor role on climate and ESG matters.

In March, the SEC set up an enforcement task force to focus specifically on ESG issues. The regulator’s 2021 examination priorities also put ESG considerations among its top priorities.

But this focus is taking the SEC “far afield of its statutory mission to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation,” Rep. French Hill, R-Ark., writes in a letter co-signed by 22 Republican members of Congress on the Financial Services Committee, to SEC chairman Gary Gensler.

“The nature and scope of climate change disclosure rightfully depends upon a particular company’s business line and their carbon footprint,” the letter states. “One-size-fits-all, uniform mandates would be deeply misguided for an issue as complex as climate change.”

Hill also writes that the lawmakers “echo” the concerns raised earlier by SEC commissioner Hester Peirce about aligning climate and ESG-related reporting standards with international standards.

Following the announcement of the new ESG enforcement task force in March, Peirce and Commissioner Elad Roisman said in a joint statement that the purpose of the task force is hazy and it “is unclear how its initial focus may evolve,” as reported.

On Thursday, Roisman issued another statement raising issues with the new ESG disclosure regime.

“I feel like a broken record, but our disclosure framework already requires public issuers to provide information that is material to investors including information one might categorize as ‘E,’ ‘S,’ or ‘G,’” he writes.

Roisman argues that the SEC “should be particularly careful to ensure that (1) investors understand the limitations of the information disclosed and (2) companies can actually provide such information without incurring undue costs and burdens.”

An April FA-IQ straw poll of financial advisors, meanwhile, found that 75% do not agree with the SEC’s decision to require ESG-related disclosures in company filings. Only 25% said they “agree with the acting SEC chair that climate risks and sustainability are critical issues for the investing public and capital markets” — while the rest believe that “the SEC should stick to requiring information that’s material to a company’s financial performance.”

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Tags:  Regulatory/legal issues , Securities and Exchange Commission

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