Comments Reveal Concerns with ESG Reporting

Commissioner Hester Peirce has developed a reputation for marching to the beat of her own drum since former President Trump appointed her to the Securities and Exchange Commission three years ago. Not surprisingly, she’s pushing back against the Biden administration’s efforts to enhance ESG reporting by public companies. Based on some comments the SEC has received from influential stakeholders, Peirce isn’t marching alone this time.

In comments delivered last week at the Brookings Institution, Peirce warned that ESG disclosure requirements for publicly traded companies didn’t really fall within the SEC’s purview. In her view, putting the SEC in charge of the project would create opportunities for bad actors to take advantage of average investors. She also raised the possibility of stakeholders bamboozling the SEC during the rulemaking process to achieve more favorable outcomes.

“Any SEC rule can create money-making opportunities, but the potential breadth and novelty of ESG issues makes an ESG rule a particularly lucrative one, and thus may make it hard for us to get objective input,” Peirce said at the event. She reportedly has gone so far as to come up with an alternate meaning of ESG: “enabling shareholder graft.”

Cheers probably rang out at lobbying firms and trade associations across Washington, D.C., when they heard what Peirce had to say about ESG reporting. The SEC’s request for public comments on climate change disclosure was met with more almost 300 responses, according to a detailed analysis by law firm Davis Polk. Roughly 40% of the comments came from trade groups.

For example, the powerful U.S. Chamber of Commerce last month implied the SEC should simply rely on companies to abide by the materiality standard that already applies to their disclosures. More specifically, the Chamber noted that an SEC-mandated approach to ESG reporting could make adequate flexibility in the requirements a pipe dream.

The U.S. Oil & Gas Association voiced its concerns to the commission using more pointed language. The USOGA primarily charged the SEC with overstepping its statutory authority, arguing that Congress has repeatedly passed on opportunities to enact laws aimed at curbing climate change. “In fact, Congress has not just failed to pass legislation, but has decisively passed regulation to the contrary,” wrote the organization, stretching back for proof to a 1997 Senate resolution calling for the rejection the Kyoto Protocol.

For its part, Delta Air Lines took a more conciliatory tone in its comments on the SEC’s ESG project. Materiality naturally made an appearance in the air carrier’s remarks about governing principles. So did flexibility in terms of the methodologies behind calculating sustainability metrics. Delta also raised the issue of creating a liability safe harbor related to climate change data and projections.

That’s just a sampling of the questions and themes that emerged in the comments. Which, as a whole, have given the SEC plenty of issues to work through before making its ESG guidance official.