ESG Disclosure: SEC's Clayton Speaks!

By Randi Morrison posted 07-25-2019 09:48 PM

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In addition to sharing his views on long-termism/short-termism, in this recent interview with Directors & Boards, SEC Chair Clayton reiterated his disinclination to pursue rulemaking that would mandate companies' adherence to uniform ESG disclosure standards or metrics, while also again (see here and here) signaling consideration of potential rulemaking to elicit more extensive (albeit, company facts & circumstances-specific) HCM-related disclosure, which he distinguishes from other ESG matters based on the societal shift over time from tangible assets (PP&E) to human capital as a principal driver of corporate value.

Here is a key excerpt:

My view is that in many areas we should not attempt to impose rigid standards or metrics for ESG disclosures on all public companies. Such a step would be inconsistent with our mandate, would be a departure from our long-standing commitment to a materiality-based disclosure regime, and could effectively substitute the SEC’s judgment for the company’s judgment on operational matters

.As I have said before, I think investors are much better served by understanding the lens through which each company looks at its business, including assets like human capital and risks like climate change and potential future regulation….

I fear that if we try to apply standardization across all companies in our markets we will end, in many cases, with mandated disclosure that is not material to a reasonable investor and, worse, inconsistent with the way the company views the issue.

Notably, Clayton's remarks are consistent with previously expressed views that "ESG" matters should not be aggregated (by regulators, investors or companies) for purposes of risk analysis or disclosure; rather, each particular issue (ESG or otherwise) should be assessed on a company-specific basis and - if material - properly addressed and disclosed based on current legal and regulatory requirements.

Clayton also advised those seeking guidance on how to approach disclosure on evolving sustainability topics such as climate change to consult Corp Fin Director Bill Hinman's recent speech: "Applying a Principles-Based Approach to Disclosing Complex, Uncertain and Evolving Risks," which we reported on here.

See also these recent reports: "ESG Ratings are in the Eye of the Beholder" and "SEC's Peirce Likens ESG Ratings to the Scarlet Letter." This post first appeared in the weekly Society Alert!

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