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Chair White Says Sustainability May Have a Place in Reporting Rule Book

Investors are growing more interested in information about companies’ handling of environmental issues and social policy concerns, and the SEC is starting to respond. The agency is asking for views on sustainability reporting, and the market regulator’s chief says a plan for dealing with the issue is beginning to develop.

SEC Chair Mary Jo White acknowledged the growing public interest in corporate sustainability information, but she stopped short of committing the nation’s market regulator to a specific plan to mandate reporting or disclosure of environmental and social policy information.

“The issue has our attention,” White said, according to the transcript of a keynote speech she gave via videoconference for the International Corporate Governance Network annual conference in San Francisco on June 27, 2016. Because the SEC has not been actively involved in the issue, White was cautious about what the agency would do. “At this juncture, the path forward on enhancing sustainability reporting is clearly still developing.”

European rules for sustainability information are at a somewhat more advanced stage than in the U.S. But in recent years an increasing number of American institutional investors have said they want to know more about the effect of companies’ operations on the environment and society. The SEC’s Investor Advisory Committee (IAC) is also scheduled to discuss sustainability at its July meeting.

Investors often complain that the SEC’s rules do not require companies to give sufficient information about their policies and practices for the so-called environmental, social, and governance (ESG) issues. Some investors want companies to report on more comparable measures with more consistency. Others want to see requirements for integrated reporting, in which traditional financial information is combined with information on sustainability. Increasingly more shareholders say such information is material to an investment decision.

As the investing public’s interest in sustainability has grown, the SEC has been relatively quiet with a limited amount of guidelines on sustainability. Some SEC regulations deal with materiality assessments to help companies and their advisers determine the significance of a specific piece of information. In addition, investors tend to consider the 2010 interpretive release in Release No. 33-9106, Commission Guidance Regarding Disclosure Related to Climate Change, inadequate because it is a piece of advisory guidance and does not require companies to make specific information public.

Now, according to White, the SEC is interested in getting feedback about its role and the steps it should take. In April, the SEC agency issued Release No. 33-10064, Business and Financial Disclosure Required by Regulation S-K, to solicit comments on ways to improve the information that public companies disclose apart from the financial statements. The release asks if the SEC should establish disclosures requirements for environmental and public policy issues and some related topics. Comments are due July 21.

Even as the SEC is looking into ESG information through the broader Disclosure Effectiveness review, White cited the complexity of the issue may stand in the way of developing clear requirements.

“Unlike financial disclosures, established and agreed upon sustainability metrics for reporting do not yet exist,” White said. “As you know, there is much debate about climate change and how to address it.”

She added, “Measuring whether and how a company will sustain its performance in a changing global physical and legal environment, which is itself uncertain, is not an easy undertaking.”