Asserting that a prescriptive approach to ESG would be inconsistent with the SEC’s principles-based disclosure framework, Peirce argues that a single set of metrics would constrain decision making and impede creative thinking by boxing companies in with preset, government-articulated metrics. Unlike financial accounting, which lends itself to a common set of comparable metrics, Peirce notes that ESG factors are complex and not readily comparable across issuers and industries.
Peirce closes by contending that the addition of specific ESG metrics, which would presumably be responsive to the wide-ranging interests of a broad set of “stakeholders,” would mark a departure from fundamental aspects of the SEC’s disclosure framework. Further, she cautions that a stakeholder-focused disclosure regime would likely expand the jurisdictional reach of the Commission and have negative consequences on our capital markets.
Peirce’s latest critique follows her and fellow Republican Commissioner Elad Roisman’s March 2021 comments in which they questioned whether the SEC’s recent actions would have any real consequence, noting that the SEC cannot adopt new disclosure rules without undertaking a formal rulemaking process. Regardless, the recent actions suggest that more prescriptive disclosure rules—or at least more concrete guidance—to facilitate ESG and climate-related disclosure are on the horizon. Based on their response to last year’s amendments to the regulations governing management’s discussion and analysis (MD&A), in which they lamented the missed opportunity to standardize companies’ ESG and climate risks disclosure requirements, Democratic Commissioners Allison Herren Lee and Caroline Crenshaw appear poised to help newly confirmed Chair Gary Gensler spearhead these efforts.