SEC Comment Letter on ESG: Shareholder Commons

We were proud to be among the signers of this comment letter from Shareholder Commons, making essential points about a more wholistic approach to portfolio theory and the role of regulation. The letter is attached in full below. An excerpt [footnotes omitted]:

Individual companies financially benefit by externalizing costs and depleting such common goods when the return to the business from that free (to it) consumption outweighs any diluted cost it might share as a participant in the economy. But over time, these decisions to exploit common resources lead to a significant reduction in the value of the portfolios of diversified investors, because the businesses that make up those portfolios rely on these resources. Investors—almost all of whom are diversified—have the potential to resist this corporate “tragedy of the commons”1 by exercising their corporate governance rights to stop the companies that they own from pursuing this type of profiteering.

But to be effective stewards, investors need sufficient information to understand whether and how companies in their portfolios are threatening the productivity of social and environmental systems. Such information (describing how the activities of a disclosing company will affect society and the environment) is sometimes called “inside-out” disclosure, in order to contrast it with the traditional “outside-in” disclosure that informs shareholders how environmental and social issues will affect the financial return of the disclosing company. Combining the two of these is sometimes called “double materiality.”

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