Pressure Mounts on SEC to Set Standards for “Environmental, Social, Governance” Corporate Disclosure and Fund Investment Styles
What Can We Expect?
Before I joined Practus LLP, I served for 18 years as in-house counsel to leading global firms in the chemical industry. Over the years I was struck by the great number of products and technologies that were pitched as more “environmentally-friendly” than their competitors. I was also encouraged by the growing discipline of “life-cycle analysis” in bringing some rigor and consistency to these claims. Europe is now taking bold steps on environmental, social and governance (ESG) disclosure in the hope that it can help fuel its “Green Deal” plans for energy transformation, GHG reductions and move to a waste-free “circular economy.” A host of manufacturing industries have crucial roles to play in these efforts. Yet it is often a challenge to attract patient capital to manufacturing industries that often are plagued with uneven growth and a legacy of products and technologies that no longer fit investor expectations.
Now that I am back in private practice in a firm with many investment management clients, I see the problem of industry transformation from a different angle. Reforms in the way firms disclose non-financial information and funds and advisors communicate with investors could make capital markets operate more efficiently. A new framework for disclosure of ESG information can help industrial firms act on their transformative business plans. A new ESG framework, could also help those in the investment industry with a well-designed approach to investing distinguish themselves from those who address these issues with a wave of the hand. A “win-win-win” proposition.
To advance this agenda, last month I filed a comment letter to the SEC on the “Names Rule” under the 1940 Act (a link is in the article). In the article, I talk about the SEC request for comment and my letter. I also analyze new recommendations from a subcommittee of the SEC’s Investor Advisory panel that calls on the agency to adopt a well-structured reform in its regulation of ESG disclosure and fund investing styles.