SEC Commissioner Roisman Suggests Safe Harbor for ESG Disclosures
Republican SEC Commissioner Elad Roisman, who has expressed considerable skepticism concerning the SEC's recent moves towards mandatory ESG disclosures, suggested in a speech yesterday to the ESG Board Forum that the SEC "consider a safe harbor for companies that are earnestly trying to provide this new [ESG] information, along the lines of that which is available for companies' forward-looking statements."
These comments are quite significant. First, they reflect a re-focusing of Commissioner Roisman's efforts from outright opposition to the promulgation of SEC disclosure rules concerning ESG issues to attempts to influence the ultimate nature and structure of those disclosure rules. Specifically, in Commissioner Roisman's speech, he stated that he "realize[s] that the agency has such rules in process," and so he chose to focus on the "potential costs of any new ESG disclosure regime and ways to mitigate them." This statement only reinforces the conclusion that the SEC will soon promulgate a "new ESG disclosure regime." (Indeed, SEC Chairman Gensler confirmed as much in recent Congressional testimony. (https://www.sec.gov/news/testimony/gensler-2021-05-26 ("I look forward to staff recommendations on proposing rules regarding issuer disclosure of climate risks and human capital. I anticipate that this will be the initial steps in our broader efforts to update our disclosure regime for modern markets."))
Second, Commissioner Roisman recognized that this new ESG disclosure regime would likely lead to an explosion in securities litigation, remarking that the SEC "will have to address the inevitable litigation risk that will come with such sweeping new disclosure requirements." Although the exact nature and extent of claims brought in such private securities litigation cannot be precisely determined in the absence of the SEC rules themselves, it seems apparent that such litigation will be forthcoming, and corporate America will have to prepare to confront an onslaught of new securities claims, whether based on current lawsuits or novel theories of liability.
Next, I think the Commission will have to address the inevitable litigation risk that will come with such sweeping new disclosure requirements. Costs surrounding private securities litigation have increased tremendously in the last decade. I worry that if we were to add a slew of new disclosure requirements—especially requirements that are not based on a materiality standard—we would expose companies (and their investors), boards, and management to numerous costly lawsuits when they are merely trying to provide information to satisfy a regulatory requirement. How can we balance the desire for new disclosure with the liability of providing estimates?
I would advocate we 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 would be asking companies to tell us what they know, as best as they can discern it. I worry we would chill that effort if we did not provide them some space to provide that disclosure.