As the so-called “ESG revolution” sweeps through corporate America, questions abound for public company directors: What should we disclose? When? Where? How? Who should oversee all this in the boardroom? What do investors want? And how do they want it?
Oddly, you don’t hear quite as much about: What will all this effort cost? But that’s exactly what SEC Commissioner Elad Roisman would like the SEC to be thinking about before it commits to a new, widely-anticipated wave of ESG rulemaking.
In a speech to directors at our 3rd annual ESG Board Forum on June 3, he said there were some essential areas where the commission could—and should—“consider tailoring new rules to mitigate costs,” including:
- Treating big and small companies differently. “The cost of obtaining and presenting new disclosures will be proportionately greatest for smaller companies that have scarce resources and are trying to grow. It will similarly be high for less mature companies that are trying to develop and refine their business models. Scaling the new disclosure requirements could lighten the burden on smaller companies.”
- Limiting to public companies—despite calls for private companies to disclose, too. “Some have suggested that in enacting new ESG disclosure requirements, we take the unprecedented step of imposing the requirements on public and non-public companies alike. I think any new requirements should be limited to public companies.
- Allowing for flexibility in presenting ESG information. “We should allow issuers flexibility and how they present much of this new disclosure, recognizing these limitations. Similarly, I’d have concerns about subjecting any such new requirements to heighten verification measures such as an audit or an attestation.”
- Safe harbors from litigation. “Consider a safe harbor for companies that are earnestly trying to provide this new information along the lines of that which is available for companies forward-looking statements. We’d be asking companies to tell us what they know as best as they can discern it. I worry we will chill that effort if we do not provide them some space to provide that disclosure.”
- Phased implementation. “Companies will inevitably looking back to us for guidance about what level of detail and scope of information meets our requirements. They will also look at other company’s disclosures for ideas on how to improve their own. This is just another reason to treat companies of different sizes differently.”
“I hope the commission could predict these costs clearly enough to mitigate them in our rulemaking process,” said Roisman, “because from my perspective, this can only help meet the stated objective, any potential ESG disclosure proposal: that is, getting this new information to investors.”