Competitiveness of US funds at risk if SEC doesn’t keep up with Europe on climate disclosure, warns €115bn investment house

European investment group Cardano has warned the US Securities and Exchange Commission (SEC) that it will find it “increasingly hard” to invest in US funds if ESG disclosure rules fall behind UK and European standards.

Cardano, which has €115bn in assets under management and advice, made the comment in its response to a current SEC consultation on revising US corporate climate disclosure rules – part of a slew of measures announced by the regulator as part of its new climate and ESG agenda under President Biden’s administration. 

Cardano is one of the first managers to lodge a public response to the consultation, although records show that financial giants JP Morgan, Legal & General Investment Management America and State Street Global Advisors have all had meetings with SEC officials to discuss the topic – as have representatives of corporate interest groups the Business Roundtable and the US Chamber of Commerce. The SEC’s records provide a note of meetings on the topic, but no details of what was discussed.

Cardano’s response bears the name of its recently-appointed Group Head of Sustainability, Will Martindale, formerly Director of Policy and Research at the Principles for Responsible Investment (PRI). 

In the document, the asset manager also said it would “strongly” welcome a mandatory comply-or-explain disclosure framework – an approach it said would be “consistent with overseas financial regulators”. It urged the SEC to “mandate climate change disclosures consistent with the recommendations of the TCFD [Task Force on Climate-related Financial Disclosures]” as well.

The SEC’s Acting-Chair, Allison Herren Lee, hinted at the introduction of mandatory climate disclosure for companies when she announced the consultation last month. 

Market input to consultation, she said, would be used by the SEC’s staff in their evaluation of the regulator’s current disclosure regime. 

Earlier this week, Gary Gensler, who has just been confirmed as the new SEC Chair under Biden, appointed Heather Slavkin Corzo as Policy Director, signalling that sustainable finance will be a top priority for the regulator. Slavkin Corzo has spent the past three years as Head of US Policy at the PRI where she frequently challenged the SEC and other regulators on their ESG stance. Before joining the PRI, Slavkin Corzo worked as the Director of the Office of Investment for The American Federation of Labor and Congress of Industrial Organizations, pushing for better workers’ rights in the US. 

As part of the SEC’s current outreach, market participants have been invited to comment on whether it should introduce new disclosure requirements or, potentially, even a new framework in line with existing disclosure frameworks like TCFD, Sustainability Accounting Standards Board (SASB) and the Climate Disclosure Standards Board (CDSB).

In its response, Cardano said that it “strongly” supported “global harmonisation on reporting standards, using frameworks that have already had several years of extensive development”. “Developing a different set of standards and measurements will confuse and obscure”, it added. 

Cardano also told the SEC that it should subject climate disclosures to the “ same levels of assurance as other financially material data sets”, in order to ensure confidence in them. 

Beyond disclosure, the investor also recommended that the SEC establish a stewardship code for asset owners and managers, akin to the one used in the UK or Japan. 

Bill Harrington, Senior Fellow at US non-profit Croatan Institute told RI that he “strongly agreed” with Cordano’s response. Harrington, who is preparing his own submission, said: “The Cardano content and standing both impress. A private company, deeply savvy in evaluating long-term investments, says that US competitiveness depends on improving climate disclosures, not ignoring them. I strongly agree.”

The SEC’s consultation ends on 15 June.