With ESG increasingly a focus for companies and investors alike, the SEC is taking a closer look at regulating ESG disclosure requirements for publicly traded companies. But not everyone is on board with the idea of the SEC calling the shots.
Commissioner Hester Peirce is speaking out against what she considers to be an overstep by the agency, reports AdvisorHub.
In an address to the Brookings Institution Tuesday, Peirce expressed concerns that attempts by the SEC to regulate ESG disclosures could open up the agency to manipulation by imonetary driven interests.
She believes that any pressure on companies regarding their ESG disclosures and metrics should come from Congress, individual states, or civic organizations, instead of the SEC.
Peirce fears that in the pursuit of profits, lawyers, consultants, ESG rating agencies, large asset managers, and possibly even the issuers of securities themselves could exploit any rule the SEC created, which in turn would come at the cost of investors.
“ESG rulemaking is high-stakes, because so many people stand to gain from it,” Peirce said. “Any SEC rule can create money-making opportunities, but the potential breadth and novelty of ESG issues makes an ESG rule a particularly lucrative one, and thus may make it hard for us to get objective input.”
Peirce has long said that ESG rulings do not fall under the purview of the SEC and believes that disclosure requirements are ineffective at best. “The more metrics any ESG rule mandates…the more demand it will create for consultants, auditors, lawyers, sustainability professionals, and other rent seekers,” she told the panel.
“Issuers too have a shot at profiting from our ESG rules,” Peirce said, making the argument that they would craft the disclosure requirements in such a way to would allow them to attract more investors and lenders.
While requirements might reduce extensive due diligence research for asset managers, investors most likely would not see any benefit in the form of fee reductions.
Several other panelists pushed back on her views, arguing that a lack of transparency was negatively impacting the country’s investment opportunities, since international investors are staying away due to lack of disclosure, amongst other things.
SPDR Analyzes Assets Using 1,000+ Data Points
For investors looking to incorporate ESG into their own portfolios, there exist several ETF options.
For example, the SPDR S&P 500 ESG ETF (EFIV) tracks the S&P 500 ESG Index, an index that selects from top companies that meet ESG criteria within the S&P 500, while also adhering to the sector weights of the S&P 500 Index.
EFIV utilizes SPDJI ESG scores to rank companies based on their sustainability. This score is derived from analyzing a thousand data points covering a variety of topics collected from companies and then asking roughly 120 questions, according to the S&P Global website.
EFIV excludes companies involved in tobacco, controversial weapons, those that derive 5% or greater of their revenues from thermal coal extraction or generate power from coal, or that score low in United Nations Global Compact standards.
The ETF’s top three sector allocations include 30.34% in information technology, 14.21% in consumer discretionary, and 12.79% in healthcare, as well as several other smaller allocations.
EFIV has an expense ratio of 0.10%, making it one of the cheapest ESG ETFs on the market.
For more news, information, and strategy, visit the ESG Channel.