Response to the SEC’s Request for Comments on Climate Change/ESG Disclosure

The SEC has asked for comments on climate change and ESG disclosures. The comment from VEA Vice Chair Nell Minow is attached in full below. Some excerpts:

As a general point, I note that some of the comments are not clear about who is funding them, what is paid advocacy, and how suggested changes would benefit their organizations. This is of particular concern following the “fishy” comments[1], sock puppets,[2] and CEO-funded dark money fake front groups[3] distorting the proxy advisory rulemaking. For example, the comment from the generically-named Texas Public Policy Foundation, which cherry-picks data to pretend climate change is not a problem, does not mention that its funders include energy companies Chevron, ExxonMobil, and other fossil fuel interests.[4]  The FreedomWorks comment is especially misleading because it appears to be signed by a long list of anonymous individuals (last names omitted), but the comment fails to disclose that the group is funded by major corporations and groups related to the ultra-wealthy, anti-regulation Scaife and Koch families. We consider these to be material omissions because basic law and economics show that knowing who is paying for a source is necessary to evaluate its purpose and objectivity. 

The disclosure requirement I would love to see implemented is one that would insist anyone filing a comment explain what their financial interest is in the outcome, but since that is unlikely, I encourage the staff to consider that question as you evaluate each comment.[1]

For that reason, I want to make clear that no one is paying me to file a comment or has asked me to do so. Neither my firm nor I have any financial interests in the outcome of any potential Commission guidance or rulemaking on climate change or ESG disclosures. We do not produce or evaluate ESG data or ratings. I have no financial other connection to any of the sources I cite.  I write solely as someone who has followed the world of corporate governance closely and worked exclusively on behalf of shareholders for more than three decades. The views I express are my own…

The reason it is the fastest-growing sector of investment vehicles[1] is a reflection of increasing concerns about the inadequacy of GAAP numbers in assessing investment risk. Let me emphasize that; ESG and climate change disclosure concerns are entirely and exclusively financial. That is what makes them a have-to-have, not a nice-to-have.

This is not surprising. After more than a century of working with GAAP, there is still a lot of inconsistency in the way accounting rules are applied. GAAP may allow for a lot of options in disclosing the value of factory equipment, but at the end of the process, hard assets are something you can count and the tax code is helpful, too, in validating those numbers. And GAAP is based on data that corporations are already required to disclose in fairly consistent apples-to-apples form. ESG, which is a recent response to the inadequacy of GAAP in assessing investment risk, is still in its earliest stages. ESG factors are inadequately and inconsistently disclosed and harder to quantify. Even so, they are already vitally important in providing guidance that traditional GAAP cannot. GAAP is focused on what values are today. ESG is about evaluating the risks of tomorrow and five and ten years from now.

There is one thing ESG is unequivocally not: non-financial. Imperfect and inconsistent as ESG data are, they are entirely and exclusively methods for better assessing investment risk and return. The comments that claim otherwise, like those of the fossil fuel companies, have failed to provide a single example to prove that there is any trade-off in shareholder value. And when it comes to what shareholders need, the Commission should rely more on what investors say they need than what issuers would prefer to give them. As a matter of law and economics, investors have the fewest conflicts of interest in determining what they need to make a buy/hold/sell decision. 

[1] Every major financial institution and every significant institutional investor now has one or more ESG options. US ESG index funds reached over $250 billion in 2020. More significantly, ESG factors are permeating every aspect of even the most traditional investment vehicles. A 2020 survey of 809 institutional asset owners, investment consultants and financial advisers found that 75 percent of them use ESG factors in their investment strategies, up from 70 percent in 2019. Nearly 13 percent of respondents were pension plan sponsors.  The largest institutional investor in the US is Black Rock, which has announced that 100 percent of its approximately 5,600 active and advisory BlackRock strategies are ESG integrated – covering U.S. $2.7 trillion in assets. Reflecting the demand, BlackRock introduced 93 new sustainable solutions in 2020, helping clients allocate U.S. $39 billion to sustainable investment strategies, which helped increase sustainable assets by 41 percent from December 31, 2019.

[1] No one can be surprised that PriceWaterhouseCoopers believes that accounting firms are uniquely capable of any new disclosure requirements.


[2] and note the overlap in the comments between groups with the same members/funders like the Business Roundtable and the World Business Council, 


[4] Their use of the inaccurate and inapposite term “cartel” to describe the proxy contest at ExxonMobil is a hint of their lack of credibility as well. One would think that they might conclude the successful election of three dissident directors was an indicator of investor frustration at the inadequacy of the company’s communications about climate change (as well as its $22 billion loss last year).

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