In his remarks before the Corporate Board Member ESG Board Forum: “Putting the Electric Cart before the Horse: Addressing Inevitable Costs of a New ESG Disclosure Regime,” SEC Commissioner Elad Roisman, while reiterating his prior views that the current principles- and materiality-based disclosure framework already satisfactorily addresses disclosure of “E,” “S,” and “G” issues, noted the SEC Chair’s determination to pursue ESG-specific disclosure mandates regardless. In that context, he encouraged public comment and engagement on this series of questions, which he indicated the SEC would need to address in any new ESG disclosure rulemaking:
- What precise items of “E,” “S,” and “G” information are investors not getting that are material to making informed investment decisions?
- It seems that some of the interest, particularly in “E” and “S” disclosures, is not in what risks environmental or social factors pose to the company, but rather what risks the company poses to, for example, the climate. To the extent that the interest is in understanding risks the company poses to the climate, what makes the SEC the appropriate federal government agency to require these disclosures, as opposed to, for example, the Environmental Protection Agency?
- How would the SEC come up with “E” and “S” disclosure requirements—now, and on an ongoing basis? What expertise is needed?
- Some have advocated that the SEC try to incorporate the work of external standard-setters. That idea raises additional questions. How would the agency oversee them—in terms of governance, funding, and substantive work product—on an ongoing basis? What kind of new infrastructure would be required inside the SEC and at the standard-setters themselves?
- If the Commission were to come up with the type of information that we hope to have companies disclose, how should we tailor our requirements to balance the benefits we are looking to achieve with such rules’ inevitable costs?
His remarks focused primarily on the latter point, namely, how the SEC could minimize costs and burdens associated with any new ESG disclosure scheme. Among other things, he suggested scaling disclosure for smaller companies, excluding private companies, providing issuers with flexibility in how the new disclosures are presented in view of the sourcing and methodology challenges, safe harbors and furnishing (rather than filing) disclosures to mitigate litigation risk, and phased and extended implementation periods.
See these posts from Cooley, Cadwalader and PracticalESG.com.
This post first appeared in the weekly Society Alert!