Showing significant evolution from prior positions discussed at its ESG subcommittee level based on that subcommittee’s research and consideration of multiple stakeholder inputs and perspectives (see, e.g., our prior reports on the SEC Asset Management Advisory Committee (“AMAC”) here, here, and here), the AMAC concluded at its meeting last week that it would be premature to recommend the SEC mandate issuers’ specific disclosure of material ESG information either via SEC rulemaking or required adoption of third-party standards.
Specifically, the AMAC recommended the SEC:
- Take steps to foster meaningful, consistent, and comparable disclosure of material ESG matters by issuers.
- Encourage issuers to adopt a framework for disclosing material ESG matters and to provide an explanation if no disclosure framework is adopted.
- Accelerate its study of third-party ESG frameworks for the disclosure of material ESG matters and acquire relevant subject matter expertise to assess how frameworks could play a more authoritative role in a near future
Most notably, the recommendations support the existing materiality standard for purposes of guiding issuers’ disclosure determinations and acknowledge the non-monolithic nature and rapidly developing area of “ESG” that in fact encompasses numerous and various yet-to-be-defined environmental, social, and governance topics:
The AMAC considered the work and record of the subcommittee and finds that “ESG” is not a monolithic category of issues unto itself. Rather, it is a short-hand reference that encompasses environmental, social, and governance factors individually and together.
Indeed, even within each factor—E, S, and G—there are numerous sub-factors whose importance to investors can vary depending on the characteristics of a given business or industry; changing preferences and market conditions; or the perceived materiality of given factors. The measurement of material E, S, and G factors and sub-factors can also vary and in some cases metrics have yet to evolve.
The AMAC’s recommendations don’t call out specific frameworks that the SEC should encourage; rather, they simply refer to encouraging issuers to identify and report against a “commonly accepted disclosure framework” that would also provide issuers the flexibility to utilize industry-developed frameworks, which the AMAC recognized may, in some cases, “be a more suitable approach than third-party ESG disclosure frameworks.”
The AMAC was established in 2019 to provide the SEC with diverse perspectives on asset management and related advice and recommendations.
See these remarks from SEC Chair Gensler and Commissioners Peirce and Crenshaw; these memos from Perkins Coie and Cooley; and this Reuters article.
This post first appeared in the weekly Society Alert!