US Council of Institutional Investors taking an interest in SEC position on climate and diversity disclosures

Main points:

  • The US Council of Institutional Investors is considering views on climate change and diversity disclosure.
  • Some key stakeholders have views that might be considered ‘yesterday’s thinking’ in Europe with a limited view of what is financially material.
  • The SEC is currently seeking public input on climate disclosure.

The sustainability reporting and materiality debate in the U.S. has recently taken a very different turn from European developments. In this Council of Institutional Investors (CII) podcast recording, Jeff Mahoney, General Counsel wanted to know what motivated me to write about the investor perspective on the harmonisation of sustainability reporting in a paper with Subhash Abhayawansa.

He asked for my take on questions concerning materiality posted by Senate Banking Committee Members to President Biden’s nominee to be chairman of the U.S. Securities and Exchange Commission. Biden’s nominee, Gary Gensler, has more progressive ideas than some care for.

Jeff noted that Gensler was asked to respond to the hypothetical: If a big public company spent an insignificant amount on, say, electricity, is it material whether that electricity came from renewable sources? There was a difference of opinion and Senator Toomey voted against the nomination stating that Gensler:

indicated that if a number of politically motivated activist investors want to know certain information, for example, information related to global warming or political spending, then its material information, even if it’s financially insignificant, and, therefore, the SEC could presumably mandate its disclosure. The bottom line is: As long as there are liberal activist investors who demand to know certain environmental, social, and corporate governance information, I have not been able to discern a situation where Mr. Gensler would not be willing to mandate disclosure of such information.

Finally, Jeff asked my view on a comment made by then SEC Commissioner, now Acting SEC Chair, Allison Herren Lee at the CII conference on diversity disclosures. She said:

It is often argued that, if information, including with respect to diversity, is material, it must be disclosed under our broad, principles-based regime. We should, therefore, leave it to companies to determine whether diversity information is material, and, if so, what specifically to disclose. This approach, however, has led to spotty information that is not standardized, not consistent period to period, not comparable across companies, and not necessarily reliable. In addition, I hear complaints about so-called “woke-washing” where companies attempt to portray themselves in a light they believe will be advantageous for them on issues like diversity. A disclosure regime that allows companies to decide if or what to disclose in this area can certainly exacerbate that problem.

You can listen to my responses in this podcast uploaded Council of International Investors channel on 29 April 2021 here (length: 17 minutes)

The SEC is currently seeking public input on climate disclosure.

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