Financial Services Subcommittee Hearing on “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social, and Governance Disclosures.”

Last week the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets held a hearing on “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social, and Governance Disclosures.”

Several pieces of legislation, or bills, have been proposed, (but not filed yet) in the US House of Representatives regarding Environmental, Social and Governance (ESG) reporting by large corporations.

● HR ___: ESG Disclosure Simplification Act of 2019 (Rep. Vargas)
● HR ___: Shareholder Protection Act of 2019
● HR ___: Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act of 2019
● HR ___: To require issuers required to file an annual or quarterly report under the Securities Exchange Act of 1934 to disclose the total amount of corporate tax such issuer paid in the period covered by the report, and for other purposes
● HR ___: Climate Risk Disclosure Act of 2019 (Rep. Casten)

The US Securities and Exchange Commission (SEC) has broad rule-making authority to require the disclosure of specific information that it determines to be in the public interest or for the protection of investors. Investors overwhelmingly support greater ESG disclosures to evaluate reputational risks as well as financial performance. Over 2,300 institutional investors worldwide, representing over $80 trillion in assets, are signatories to the UN-sponsored Principles for Responsible Investment which formally commits them to incorporate ESG factors into their investment decisions.

Investors need ESG information to hold managers accountable, enhance the accuracy of stock prices, and ensure a more efficient allocation of capital.

Some of the testimony at the hearing included the following:

● Subcommittee Chair Rep. Maloney:
○ ESG disclosures include environmental issues (climate change), social issues (human rights), and governance issues (political spending by public companies).
○ Considerable evidence shows that companies with better ESG also perform better financially.
○ Many companies disclose some ESG info which lacks detail and a standardized format.
○ Rep. Maloney called for SEC to establish standards for ESG Disclosure to apply to all public companies.
● Rep. Juan Vargas:
○ “Investors increasingly view ESG Disclosures as crucial tools and material information for evaluating a company's financial performance. Research has shown that companies that account for ESG factors tend to perform better with more stable returns.”

From an outline written by Willem Sheetz, Impact Investing Analyst, University of Wisconsin (Madison).

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