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Investor Advisory Committee Pushes SEC to Lead on ESG Disclosures

The U.S. Securities and Exchange Commission’s Investor Advisory Committee’s Investor-as-Owner Subcommittee recently voted 14-4 to approve a recommendation that urges the Commission (SEC) to begin an effort to update the reporting requirements of public companies to include material, decision-useful environmental, social, and governance (ESG) factors. The recommendation notes that ESG is no longer a fringe concept (thanks!), that investment and voting based in part on ESG disclosure is front and center in today’s global investment ecosystem and that investors are not being served or protected by the piecemeal, ad-hoc, inconsistent information currently available with respect to U.S. public companies. We agree that there is a need to systemize the reporting of ESG matters for the benefit of investors, including over $12 trillion of U.S.-domiciled professionally managed ESG-related assets.  

The recommendation notes that addressing ESG disclosure now will (a) provide investors with the material, comparable, consistent information needed for investment and voting decisions, (b) provide public companies with a framework to disclose material, decision-useful, comparable and consistent information in respect of their businesses, rather than the current situation where investors largely rely on third party ESG data providers, which may not always be reliable, consistent, or even material, (c) help level the playing field among all U.S. public companies regardless of market cap or capital resources, (d) help ensure the continued flow of capital to U.S. public companies and (e) enable the SEC to take control of ESG disclosure for U.S. capital markets before other jurisdictions impose disclosure regimes that become benchmarks which could be required of U.S. issuers and investors alike.

According to a report, the U.S. had over 125 third-party ESG data providers in 2016. The considerable number of providers, with different standards for evaluating a company’s ESG strategy, and the lack of standardization and transparency in ESG reporting and scoring presents major challenges for investors. Further, larger companies are able to commit the resources to respond to complex and lengthy questionnaires, while smaller companies lack the systems and staff to do so. So small- to mid-size issuers risk receiving a low ESG rating that may affect their stock price or access to capital, among other consequences. 

Furthermore, even when companies do share their ESG data, some may publish unconfirmed internal reports while others reference a range of existing third-party standards. Currently, independent organizations such as the Sustainability Accounting Standards Board and Task Force on Climate Related Financial Disclosures help streamline the process, but there is a lack of uniformity. Therefore, the IAC calls on the Commission to modernize the current disclosure framework

The recommendation notes that the U.S., which has the largest capital markets in the world, should take the lead on imposing ESG disclosure standards. Otherwise, jurisdictions such as the European Union, a key player in the ESG space, may create regulations that become a global benchmark for issuers around the world. This would potentially put U.S. issuers at a disadvantage

Although the IAC voted largely in favor of the recommendation, certain members, such as Steven Holmes, General Partner Emeritus at InterWest Partners, expressed that ESG ratings should be within the purview of private parties rather than “opining and mandating some central group, such as by the SEC.” Commissioner Allison Herren Leevoiced her support for the recommendation, acknowledging that the debate around ESG disclosures is controversial but that investors overwhelmingly want these disclosures. It is still unclear when or whether the SEC will move forward with exploring an SEC-regulated ESG reporting framework – but we are certain that a wide-range of asset-managers and investors will continue to demand it.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume X, Number 153


About this Author

Sahir Surmeli Energy & Sustainability Attorney Mintz Levin

Sa is a highly skilled and versatile business counselor who advises companies, boards, entrepreneurs, investment banks and venture and private equity investors, as they build and grow companies. He handles public offerings, 144A and private financings, acquisitions, joint ventures and strategic partnerships. Sa guides public and private companies and investors, primarily in the energy and sustainability, technology, materials science, hospitality, retail and life sciences industries. Known as a problem-solver, Sa executes transactions with creative structures to address new opportunities...

Member / Chair, Energy & Sustainability Practice

Tom Burton’s zeal for innovation and passion for energy and sustainability have shaped the clean energy industry. He created one of the nation’s first clean energy legal practices. Clients ranging from investors to entrepreneurs to Fortune 100 companies rely on him for creative and strategic legal solutions, and he has completed hundreds of venture capital and private equity financings, mergers and acquisitions, and IPOs. He guides the industry’s next generation of leaders through active involvement with start-up organizations and accelerators. The Northeast Clean Energy Council recognized his pioneering role in the Northeast with a Decade of Influence award in 2017.

Tom’s global practice focuses on complex corporate finance matters including mergers and acquisitions, venture capital, private equity, and securities transactions. He represents high-growth and emerging businesses, including companies in the energy and clean technology, social media and software industries, as well as life science companies, from start-ups to public companies.

In 2004, Tom founded, and currently chairs, the firm’s Energy & Sustainability Practice, which has completed more than 500 transactions across energy sectors totaling over $8.5 billion since 2006. Serving more than 250 clients, spanning the ecosystem from emerging companies to large corporations, venture capital and private equity funds, investment banks, project developers, and family offices, the firm is recognized nationally as a leading law firm in the space. Tom is ranked byBest Lawyers in America in the Corporate Law section, and he is recognized by The Legal 500 United States as “rising to the fore” in energy technology for Venture Capital and Emerging Companies.

On the corporate and securities side, Tom has served as counsel in the structuring and completion of over 400 venture capital and private equity financings, representing both the funds providing the capital and the emerging growth companies seeking funding. His work in this area has raised billions of dollars. He organizes venture capital funds and represents them in their portfolio investments. Tom is also a key contributor to MintzEdge, an online resource for entrepreneurs that includes useful tools and information for starting and growing a company. In addition, he devotes a portion of his practice to counseling social enterprise companies, impact investors, and nonprofit companies.

Tom routinely counsels businesses on their growth and development, advises their boards of directors on corporate governance matters, and participates in an array of transactions, from private and public offerings to mergers and acquisitions, joint ventures, and technology transfer matters. Tom also has experience in advising investment banks in private placements and underwritten public offerings of equity securities, and in their role as financial advisor in mergers and acquisitions.

He applies his background in corporate finance to counsel energy and clean technology companies through all stages of formation, financing, and exits. His energy and clean technology clients span markets such as solar and wind, smart grid and energy efficiency, energy storage, water technologies, waste treatment, biofuels, electric vehicles, and green buildings.