Securities and Exchange Commissioner Peirce sceptical of ESG in new speech

Securities and Exchange Commissioner Hester Peirce recently addressed the 17th annual SEC Conference on corporate reporting and governance. As the title of her speech states, she has a “beef with stakeholders”, the S-word. And she’s not sympathetic to ESG.

Towards the end of her speech, she says: “When a pension fund manager is making the decision to pursue her moral goals at the risk of financial return, the manager is putting other people’s retirements at risk.”

She goes on: “Even if we were to accept—and I do not—that it is desirable to use funds held by large investors as a means of fueling social change, it is not clear that the factors managers now consider actually have the intended effects.”

She then continues by stating that there is no agreement between either companies, investors or the market on what ESG factors are or what they mean, saying that they cannot compare ESG factors across companies.

Peirce, whom RI interviewed earlier this year, added: “Many advocates of using ESG criteria cite data that support the claim that companies that implement ESG-friendly policies outperform those that do not.

“Testing this hypothesis is tough since, although discussed as one set of criteria, in fact, ESG factors typically evaluate an eye-popping array of corporate behavior.“These criteria may cover everything from the number of women who sit on the board to whether a plant carries a green certification to the company’s involvement in certain disfavored industries. In considering what may contribute to a company’s success, pointing to gender diversity, concern for the environment, and avoidance of “sin” products is so scattershot as to be useless. These factors simply have nothing to do with one another.”

But these statements come at the end of her speech. Peirce takes the opportunity of speaking in California to question the state’s recent legislation requiring a certain number of women on the boards of companies either incorporated or headquartered in the state.

She says it’s not been proved that having more women on is good for a company.

She says that “companies looking out for their long-term value already have strong incentives to take that evidence [that women on boards improves companies’ performance] under consideration.”

Peirce became an SEC Commissioner this year and her term ends in 2020. Her SEC colleague Robert Jackson is a speaker at the forthcoming RI Americas event.