A subcommittee of the Securities and Exchange Commission’s Investor Advisory Committee is recommending that the agency update its reporting requirements for public companies to include material information related to environmental, social and governance (ESG) factors.
“The time has come for the SEC to address this issue,” notes the recommendation of the Investor-as-Owner Subcommittee.
“ESG is no longer a fringe concept,” according to the subcommittee report. “It is an integral part of the larger investment ecosystem of our modern, global, interconnected world.”
There is currently a patchwork of information available to investors and investment advisors about an issuer’s ESG profile — some coming from the issuers themselves; some from third-party data providers, which base their ESG data on the information that issuers provide.
The data provided by issuers is inconsistent and doesn’t always focus on material factors that investors and investment advisors need, and the ratings systems of ESG data providers vary in how they determine materiality issues for companies.
The result is “a lack of consistent, comparable, material information in the marketplace and everyone is frustrated — issuers, investors, and regulators,” according to the subcommittee committee report.
Time for an ESG Update
The subcommittee is proposing that the SEC “begin in earnest an effort to update the reporting requirements of issuers to include material, decision-useful ESG factors,” with input from investors and issuers that SEC staff could then evaluate.
It contemplates a principles-based framework that would require issuers to disclose directly to investors and third party data providers material information related to ESG factors.