SEC Chair Gensler is taking a deeper look at ESG investing issues

Securities and Exchange Commission Chairman Gary Gensler is fleshing out his thoughts on climate risk and human capital disclosure.

The SEC recently concluded a public comment period on expanding corporate climate disclosures. It has also launched a climate and ESG enforcement task force.

In a speech for London City Week today, Gensler said the SEC has received more than 400 unique comment letters on environment, social and governance issues.

Now he is starting to examine more closely what kind of information the SEC may be looking for.

He has asked his staff to look into a range of more specific metrics, such as greenhouse gas emissions, to determine which are most relevant to investors.

Gensler also wants to know if companies are living up to any commitments they have already made on climate-related issues.

“Further, I’ve asked staff to consider potential requirements for companies that have made forward-looking climate commitments, or that have significant operations in jurisdictions with national requirements to achieve specific, climate-related targets,” he said.

ESG is one of the hottest investment segments right now, and Gensler says he wants more information on what those qualities are and how they are marketed.

“I’ve also asked staff to consider the ways that funds are marketing themselves to investors as sustainable, green, and ‘ESG’ and what factors undergird those claims,” he said.

Gensler also wants more information on human capital disclosure, or how corporations interact with their employees.

“This builds on past agency work and could include a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety,” Gensler said. “Disclosure helps companies raise money. It helps the efficient allocation of capital across the market. And it helps investors place their money in the companies that fit their investing needs.”

Gensler also said he would seek greater transparency for how U.S. Treasuys are bought and sold, noting that, “Early in the pandemic, we witnessed a deterioration of liquidity affecting critical parts of the Treasury market.”

Gensler also wants to modify rules on beneficial ownership, which mandate large shareholders of public companies disclose information.

“Under current rules, beneficial owners of more than 5% of a public company’s equity securities who have control intent have 10 days to report their ownership. We haven’t updated that deadline in over 50 years … I’ve asked staff how we might update these rules, including possibly shortening reporting deadlines.”

House Republicans have warned the SEC not to impose a requirement for climate risk disclosure, claiming the SEC is overstepping its bounds.

The legal issue is materiality: Are ESG disclosures material to investment returns?

Gensler believes they are and that everything the SEC asks for doesn’t necessarily have to be “material” to require disclosure.