Commissioner Lee Focuses the SEC on a revamp of ESG

SEC Commissioner Allison Herren Lee wants the SEC to clarify its role and update disclosure requirements on ESG.

In prepared remarks addressed to the Investment Advisory Committee (IAC), SEC Commissioner Lee drew attention to investors’ growing interest in ESG. The IAC was meeting to consider the topic “Whether Investors Use Environmental, Social, and Governance (ESG) Data in Investment/Capital Allocation Decisions.”

Commissioner Lee said investors were looking to invest in companies that marry policy with actions. The focus areas were “sustainability, ethical business standards, and good governance.”

It was time to update the guidelines on climate-related disclosure, last issued in 2010.

Since that date, climate change risk has acquired a new meaning in the light of new scientific data. The impact of the new risks on companies has, therefore, dramatically changed. As a result, investors need to get a handle on these risks and assess how their investments would be affected. What are the disclosures that will enable investors to assess these risks accurately?

SEC Chairman Jay Clayton on ESG

Though Mr Clayton could not be present at the IAC meeting, he did set out his views on ESG in a statement for the IAC:

“I am very interested in how and to what extent you use “E,” “S” and “G” data. Does your use of this data reflect a change in investment approach, or is it an enhancement to your traditional approach? Is the use of such data designed to improve investment performance over a particular term, to screen certain activities, companies or industries to address a particular objective or policy, or a combination of these goals? And how do the underlying clients view and understand the asset manager’s use of such data?”

“Answering these questions will assist us in our efforts to foster the production of “decision-useful” (aka “material”) information.”

Discussions of the IAC

The committee reportedly weighed in on data requirements of both companies and investors for making judicious investment and capital allocation decisions regarding ESG.

[Related Story:  Are Climate Change Disclosure Lawsuits Coming for Asset Managers  ]

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