Third-party ratings of companies on ESG (Environmental Social and Governance) standards are too simplistic to be useful for investors, the US Securities and Exchange Commission (SEC) was recently told by officials from AllianceBernstein and Neuberger Berman, at a meeting of the SEC’s Investor Advisory Committee.
Joined also by representatives from State Street Global Advisors and Calvert Research & Management, the group argued that current corporate ESG disclosures lack consistency and standardization, and that the desired standards must work to support investors’ interest in long-term value creation.
Michelle Dunstan, Global ESG Manager at AllianceBernstein, argued that the SEC can take the lead to solve this problem. Whether the SEC will seek to play a role in driving the creation of reliable and consistent ESG standards remains to be seen. It is common for regulators to look to the industry to stand up such solutions. However, regulatory bodies and other public agencies can play an often critical role in helping to overcome “collective action problems.”
SEC Chair Jay Clayton has been vocal recently about a need for greater disclosure around non-financial risks at listed firms — particularly given business challenges posed by Covid — and has issued calls for an exchange of “forward looking information.”