November 30, 2020

Volume X, Number 335

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SEC Commissioner Considers Future ESG Investment Regulation

SEC Commissioner Allison Herren Lee suggested the SEC should consider standardized rules and regulations for governing socially responsible investing.  In her speech, entitled “Playing the Long Game: The Intersection of Climate Change Risk and Financial Regulation”, Ms. Lee asserted that the SEC should address standardized reporting with respect to climate risk, as well as a standard framework of policies and procedures for financial services institutions that assist clients with environmental, social and governance (ESG) investments.

In her comments, Commissioner Lee compared climate change risk to the current COVID-19 pandemic, suggesting that climate change “looms even larger than the pandemic and could have even more grave human and economic cost”.  In assessing the urgency to act now, she stated that “we should not wait for climate change to make its way from scientific journals, economic models and news coverage of climate events directly into our daily lives, and those of our children and theirs.  We can come together now to focus on solutions”.

While she admitted that the SEC is not necessarily the agency best-equipped to combat climate change, Commissioner Lee set forth the “three pillars of oversight” of the SEC, stating that “we protect investors, facilitate capital formation, and maintain fair, orderly and efficient markets”.  She suggested that the SEC needs to act because “[t]here are numerous ways in which the risks and opportunities arising from climate change intersect with our financial markets and those three pillars of oversight”.  In order to oversee the risks to financial markets from climate change, Lee suggests that there should be “uniform, consistent and reliable disclosures” from financial institutions, public companies, investment advisors, asset managers and other market participants.  Lee suggests that all of these entities should work together “toward a disclosure regime specifically tailored to ensure that financial institutions produce standardized, comparable and reliable disclosure of their exposure to climate risks, including not just direct, but also indirect, greenhouse gas emissions associated with the financing they provide”. 

Lee seeks to create standard policies and procedures regarding disclosures related to ESG investing because investors need more precise information on ESG factors.  Lee opined that their needs to be standardization in the ESG area, asserting that “disclosure in this area is key, and funds and their advisers must be clear about what they mean when they use these or similar terms to describe a fund’s principal strategies or risks”.

Lee seeks public input on how the SEC might oversee investment advisers approach to ESG investing, including how an adviser may assess and/or implement ESG factors to appropriately implement a client’s wishes with respect to their investments, as well as their exercise of shareholder voting rights.  The full text of Lee’s November 5, 2020 speech to the Practising Law Institute can be found here.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume X, Number 322
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About this Author

David L. Ward Member Securities Litigation White Collar Defense & Government Investigations Complex Commercial Litigation Arbitration, Mediation, ADR
Member

David Ward focuses his practice on financial services regulatory matters, internal investigations and related litigation. He represents financial services clients throughout the United States, including broker-dealers, investment advisors, banks, pension consultants, insurance companies and publicly traded entities before the SEC, FINRA, CFTC, U.S. Department of Justice and state regulators. David regularly assists clients in internal investigations; the defense of regulatory investigations, sales practice issues, corporate governance matters and securities-related litigation in state and...

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