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SEC Investor Advisory Committee calls for better guidance on ESG reporting

Dodd-Frank committee in draft letter to SEC’s Division of Corporate Finance

The Securities and Exchange Commission’s Investor Advisory Committee is to call for better guidelines for companies on reporting qualitative ESG risks.
The panel was set up by the SEC under the Dodd-Frank Act and includes figures such as Anne Sheehan of CalSTRS and Adam Kanzer of Domini Social Investments. It is chaired by Kurt Schacht, Managing Director of the CFA Institute.
Earlier this year it expressed its “concern” over new proposals about corporate materiality disclosure from the Financial Accounting Standards Board (FASB).
Now, in a draft letter to the SEC’s Division of Corporate Finance, the committee points to the “significant and growing number of investors utilis[ing] sustainability and other public policy disclosures to better understand a company’s long-term risk profile”.

“ESG issues can be material based on a quantitative measure such as the expenditures required, or the effect on earnings. Such issues can [also] be material when considered in the context of qualitative factors such as the effect on a company’s reputation or the impact on the purchasing decisions of the issuer’s customers,” the authors say.However, they continue, the SEC “does not have well-developed guidance to issuers in the area of assessing qualitative factors in this area”.
The letter recommended the creation of “an analytical framework that more clearly sets out the qualitative factors that can affect the analysis in this area”.
Not all members of the committee fully backed the suggestion, though.
The letter conceded that a minority of members believed the current focus on, and definition of, materiality was appropriate, and that “changes to the commission’s disclosure rules, or new qualitative guidance, could be used to advance political or social issues that those members believe are better suited for Congress or other federal authorities”.
The comments come in the context of the SEC’s recent “concept release” on ‘Business and Financial Disclosure Required by Regulation S-K’ and the SEC’s disclosure effectiveness project. Regulation S-K is a regulation under the Securities Act of 1933 that lays out reporting requirements for various SEC filings used by public companies. Link