July 22 — Investors representing trillions of dollars around the world are asking the U.S. Securities and Exchange Commission to approach corporate reporting on environmental, social and governance (ESG) issues like it would any other financial disclosure issue.
“Material financial and ESG information are part of the same product and consequently should be delivered in the same wrapper and be subject to the same standards of rigor,” a global network of investors that have signed onto the Principles for Responsible Investment told the commission.
The United Nations-supported initiative, which includes nearly 300 signatories in the U.S. with $33 trillion in assets under management, is one of a number of responsible investment advocates seeking new SEC guidance or requirements to improve corporate sustainability reporting.
The commission was gathering feedback until July 21 on ways to make sustainability reporting and several other types of disclosures covered by Regulation S-K more user-friendly for investors. The environmental, social and governance information that appears inside and outside mandatory reporting today generally isn't considered comprehensive or comparable enough to meet investors' needs.
When the commission looked at corporate disclosures on environmental and social matters in the 1970s, it found that only a very small fraction of investors were motivated by these considerations.
Since then, sustainable, responsible and impact investing has grown to account for more than $1 out of every $6 under professional management in the U.S. in 2014, according to the latest estimates from the U.S. Forum for Sustainable and Responsible Investment.
“Mission-aligned and long-term investments are mismatched with the current state of disclosure that is focused almost entirely on short-term financial results with little regard for the ability of corporations to thrive alongside the environment and societies in which they operate,” the $815 million Rockefeller Brothers Fund wrote to the SEC.
“Based on our experience with these issues, we believe it is critical for the SEC to improve reporting of material sustainability risks in issuers’ SEC filings, both because such disclosure is mandated by current law and because we need it to make informed investment and proxy voting decisions,” 45 investors with $1.15 trillion in assets under management said in comments to the commission coordinated by the sustainability advocacy group Ceres.
The environmental and social information that companies report also increasingly influences procurement decisions by the federal government and other institutional purchasers, the Environmental Protection Agency said in its comments .
More than 9,500 individual retail investors signed onto another letter seeking more transparency about public companies’ sustainability efforts, their political spending, and their overseas tax payments.
The U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, however, took issue with what it called “special interest” disclosures, saying the commission's reporting regime shouldn’t “be used to further social, cultural or political motivations that the federal securities laws were not designed to advance.”
One topic receiving extra attention from commenters was climate change. The commission issued guidance in 2010 explaining how existing reporting requirements apply to climate change, but the resulting disclosures have been described as too vague and its enforcement has been criticized as too lax.
“In our opinion, the existing SEC rules have produced insufficient information for consumers and investors,” Reps. Matt Cartwright (D-Penn.), Ted Lieu (D-Calif.) and four other members of Congress said . They cited as examples Exxon Mobil Corp. and the now-bankrupt Peabody Energy Corp., both of which have faced investigations over how they portrayed the risks of climate change.
To give shareholders a better understanding of their potential exposure, the commission should consider industry-specific disclosure requirements for the extractives industry and possibly other carbon-intensive industries such as utilities and industrials, wrote the Carbon Tracker Initiative. The London-based think tank estimates that coal, oil and gas companies risk wasting up to $2.2 trillion in the next decade on projects that could become uneconomic as government policies slash demand for fossil fuels.
“Investors need robust, mandatory reporting to capture climate change risks across their portfolios,” Anne Simpson, investment director of global governance at the $300 billion California Public Employees’ Retirement System, said in a statement July 20. Voluntary disclosure, she said, is like “Swiss cheese— appetizing and full of holes.”
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