Guidance for Comments to SEC on Climate Change and ESG Corporate Disclosures 

Intentional Endowments Network - May 2021

 

SEC Request for Public Comments

SEC Acting Chair Allison Herren Lee, on March 15, 2021, issued a request for public input on improving Commission corporate disclosure requirements relating to climate change and environmental, social and governance (ESG) matters.  Commenters were encouraged to submit empirical data and other information on the materiality, costs and benefits of such disclosures. 

This presents a unique opportunity for endowments, foundations and other institutional investors.  The comment deadline is June 14, 2021.  Instructions for making submissions and copies of comments that have already been received are available here.

General Guidance

Given the SEC’s practice of counting the number of submissions for and against proposed regulatory actions, separate submissions are preferable to group comment letters.  The SEC is looking for information on financial materiality of climate change and ESG disclosures. To the extent possible, commenters are encouraged to include empirical data or specific examples of situations where reporting of consistent, comparable and reliable information on climate or other ESG issues is (or would be) material to investment decisions and explain why.  

Acting Chair Lee’s request identified 15 general comment topic categories, which include a number of specific questions. She asked that commenters specify which topic categories they are addressing.  However, submissions need not be comprehensive. Even short letters of support or general comments would be helpful.  

The potential comments identified in this guidance are most relevant to topic categories #1 (investors’ need for more consistent, comparable and reliable information); #8 (companies disclosure of related internal governance and oversight practices); #13 (how to elicit meaningful discussion of company views); and #15 (incorporating climate issues in a broader ESG disclosure framework). 

Several other investor organizations are offering assistance with preparation of comments to the SEC and are offering joint letter sign-on opportunities.  For example, IEN members are encouraged to review Ceres’ sign-on letter (deadline: May 28) and PRI’s webinar and sign-on letter.

 

Potential Comment Topics

Academic endowments and foundations have a unique investment perspective that is often not adequately represented in comments from other investors. The following menu of potential comment points is provided to assist IEN members in developing comment letters.

 

 

• Fiduciary Duties Impose Legal Obligations that Require Climate and ESG Disclosures

 

• Nonprofit academic investment institutions typically have a fiduciary duty of obedience

  , which requires them to consider the mission goals of their sponsoring entity in development of their investment beliefs and strategies.  For example, college or university mission goals relating to preparation of new generations to address problems faced by society, promotion of the scientific method, dedication to the search for truth, etc., make consideration of climate change and many other ESG factors a material component of investment analysis. This duty is unique to nonprofit investors.  See IEN briefing on fiduciary duties.

• For academic investors with inter-generational (even perpetual) financial obligations, use of a long-term investment horizon that considers ongoing company success, as well as effects on resilience and sustainability of the societal, economic, governmental and environmental systems that are essential to generation of future wealth creation and mitigation of risks to which the investors’ beneficiaries will be exposed is necessary. The fiduciary duty of impartiality requires good faith balancing of short-term investment performance with the impact of the longer-term pecuniary effects of investment practices on company-generated externalities for future faculty, students, mission goals and academic institution viability.  See resources on long-term investing and fiduciary duty, materiality of systematic issues and inter-generational equity.

• The standard of care under the fiduciary duty of prudence has evolved in response to changing knowledge and circumstances since the 20th century.  Consideration of climate change and ESG/sustainability as material investment factors is now a mainstream institutional investor practice that has been found to be associated with improved performance.  Fiduciary duties cannot be met without increased reporting. See IEN fiduciary duty overview, state of the field, endowment practices and industry practice information. 

 

• Fiduciary obligations include a duty to monitor how delegated agents are implementing fiduciary responsibilities.  This includes oversight of proxy voting activities and requires ongoing access to the full range of current information necessary for evaluating compliance with all aspects of fiduciary duties.  See resources on monitoring proxy voting.

 

 

 

• Corporate Directors have a Long-Term Fiduciary Focus Requiring Climate and ESG Data

 

• Delaware corporate law also mandates (outside sale of the company) that directors act in good faith to generate long-term sustainable value for the benefit of the company and long-term shareholders. This is consistent with the long-term horizon of investor fiduciaries and provides a consistent legal framework that brings materiality of climate change and ESG exposures into focus for both companies and investors – especially those with perpetual obligations. It supports requiring greater disclosures about corporate long-term strategic planning and risk management, which necessarily implicates climate and ESG exposures.  In particular, the recent International Energy Agency report which lays out an industry roadmap to reach net zero carbon emissions by 2050 has broad strategic planning ramifications across industries. Further information on the links between investor and corporate long-term fiduciary duties with climate and ESG issues is available here. 

 

 

• Other Comment Topic Categories that Merit a More Customized Investor Response 

 

• Topics #2 & 4: What information or metrics do investors need and how do/would they use it? Should new standards be phased in over time and/or be scaled or developed differently across industries or by size of companies? 

• Topic #5: How should SEC regulations interact with existing reporting frameworks?

• Topic #6: Should the SEC identify an independent ESG standard setter?

• Topic #7: In what documents should the disclosures be included?

• Topic #8: Should companies disclose related internal governance, oversight, metrics and compensation provisions?

• Topic #9: Should a global standard setter be created or provisions be made for cross-border coordination of multiple standard setters?

• Topics #10 &11: Should audit and internal control or enforcement mechanisms be established?

• Topic #12: Would a “comply or explain” framework be appropriate?

• Topic #13: How could regulations best elicit meaningful discussion of the company’s views on climate and ESG issues?

• Topic #15: Should climate disclosures be part of a broader ESG reporting framework?