SEC Advisory Committee pushes for action on ESG disclosures

In the wake of widespread expectations that the new Biden administration will push for action on uniform ESG disclosures, last week the ESG Subcommittee of the SEC's Asset Management Advisory Committee recommended that the SEC take steps regarding disclosure of material ESG risks in respect of issuer disclosures and investment products. On the same day the recommendations were released, two Republican SEC Commissioners issued statements raising concerns about the recommendations generally and with the details.

Given that issuers are already required to disclose material risks, the Subcommittee suggested that the SEC should require the adoption of common standards by which corporate issuers disclose material ESG risks. The SEC should utilize existing standard setters' frameworks to require disclosure of material ESG risk, and require that material ESG risks be disclosed in a manner consistent with the presentation of other financial disclosures.  

As for investment products, the Subcommittee recommended that:  

- the SEC should suggest best practices to enhance ESG investment product disclosure, including alignment with the taxonomy developed by the Investment Company Institute ESG Working Group, and clear descriptions of each product's strategy and investment priorities, including description of non-financial objectives such as environmental impact or adherence to religious requirements; and

- the SEC should suggest best practices for investment products to describe each product's planned approach to share ownership activities in the Statement of Additional Information, and any notable recent ownership activities outside proxy voting, which is reported in Form N-PX, in shareholder reporting.

Only time will tell what, if any, action the SEC will take on ESG disclosures--but the process for consideration of these issues is definitely underway.