As investor demand for climate and other ESG information soars, the role of the U.S. Securities and Exchange Commission is to ensure investors have access to the information that they are seeking, according to Commissioner Caroline A. Crenshaw.
“Investors are increasingly demanding information on how companies that sell securities, issuers and investment funds both identify and assess and manage these environmental, social and governance risks,” she said on the STA Trading Views podcast.
Crenshaw said that ESG is not a monolithic issue: “It generally refers to what we’ve talked about as environmental, social and governance risks. But there are many sub-issues like supply chain disruptions due to climate change, human capital management, executive pay and political spending disclosures.”
The types of disclosures investors want may vary across issues, she said: “I think investors may have different preferences about the particular ESG factors that they want to be incorporated and how they want those factors be incorporated in the decision making process. But I think it’s not always clear whether an asset manager is incorporating ESG factors in ways that meet the investors particular preferences and expectations.”
According to Crenshaw, many investors consider ESG issues to be material to accompany financial performance, or to long-term value, and are taking that into account when making investment decisions.
“There’s fairly comprehensive research showing that companies that take ESG considerations into account have a more sustainable approach to their operations and tend to perform better than their peers that don’t take that same approach,” she said.
“So shareholders are considering positions on ESG issues when voting on shareholder proposals,” she added.
The problem of not having standards is that companies and funds will present information on ESG related risks inconsistently, Crenshaw said.
“I think it makes it hard for investors to compare the financials so especially for buy and hold.”
Crenshaw thinks it’s currently very difficult for asset managers to get access to consistent, comparable and reliable information about issuers that help inform the asset managers ESG related investment decisions.
“I think the Commission’s role is to facilitate disclosures to investors that enable informed decision making and facilitating consistent, comparable, reliable, and understandable ESG related disclosures.”
“We need to facilitate ESG related disclosures, both for issuers and asset managers. I think this can help ensure that asset managers on the one hand have the information they need to make informed investment decisions that are responsive to investors, and on the other that investors are able to understand and assess whether and how asset managers are approaching ESG related risks and issues. So ultimately, I think this would help ensure that investors preferences and expectations are being met.”
Despite intense public attention to the topic and shareholder pressures, achieving board diversity has been slow in the making.
“We do need to take a comprehensive look at what is currently out there. I think it’d be interesting to look at employee retention and turnover levels in the wake of Covid, capacity to transition to telework, among other issues.”
“There’s all sorts of things that we can be looking at in that area. But I think the critical thing is we have to focus on both the S and the G, as well as the E,” she said.
In March, the SEC launched a Climate and ESG Task Force in the Division of Enforcement.
The initial focus is to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.
The task force will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies
“The ESG Task Force was created because of the increased investor interest and focus on ESG issues,” Crenshaw said.
“ESG issues have been discussed at multiple advisory committee meetings. And we are actively looking for public feedback on the rule-making policy side of things,” she said.
