A group of U.S. institutional investors is petitioning the Securities and Exchange Commission to impose an obligation on companies to report on certain prescribed environmental, social and governance issues.
“In response to changing business norms and pressure from investors, most of America’s largest public companies are attempting to provide additional information to meet these changing needs and to address worldwide investor preferences and regulatory requirements,” read the letter to the SEC. “Without adequate standards, more and more public companies are voluntarily producing sustainability reports designed to explain how they are creating long-term value. There are substantial problems with the nature, timing and extent of these voluntary disclosures, however.”
Specifically, the group asked the SEC to create a framework for companies to use to report on ESG issues so investors have information that’s clear, consistent and complete, and facilitate comparing between companies.
The petition makes several arguments for why the SEC should take on this responsibility. First, it has the clear statutory authority to require this type of disclosure, and doing so would protect the competitive position of American public companies and the U.S. capital markets. Further, more investors are finding ESG information material to their processes. As well, companies are currently struggling to provide ESG information that’s useful to investors, even though there’s a recognized need, and when they do report that information, it isn’t standardized.
The letter stressed that providing a framework that all companies would need to work with would level the playing field for the U.S. companies currently providing ESG information voluntarily. “Comparability will allow actual sustainability leaders to be recognized as such, with attendant financial benefits such as increased investment and a lower cost of capital,” noted the letter.