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Clayton Unsure About Usefulness of Nonfinancial Disclosures

SEC Chairman Jay Clayton had mixed views about whether public companies should provide more information about so-called environmental, social, and governance (ESG) matters. He believes companies can always do a better job of disclosing sustainability information but did not advocate for writing such a disclosure rule.

At a March 12, 2018, industry event, SEC Chairman Jay Clayton said he had mixed views about whether public companies should provide more information about environmental, social, and governance (ESG) matters.

“I think the G disclosure, the amount or the topics that are disclosed, it is pretty good overall,” Clayton said in response to a question about disclosures concerning corporate governance issues. “I think it’s expanded substantially in terms of the topics. I think the verbiage has expanded more than necessary. I would like to find a way to keep the same amount of substance [or] increase the substance but reduce the verbiage.”

Clayton spoke during a session by former SEC Chair Elisse Walter at the Council of Institutional Investors (CII) 2018 Spring Conference in Washington.

As for environmental and social matters, Clayton was less certain about the usefulness of the information. In his view the quality of the disclosures has improved but there is no consensus view about the information that should be included.

“I would like to see people focus more on what investors need to know in the E area as opposed to more macro topics,” Clayton said. Disclosures about social issues are a topic for which Clayton said, “I struggle a little bit because it’s an area different people think different metrics around the same concept are important, and it’s hard to get a consensus on what that metric should be. And that makes it more difficult because everybody wants their particular metric.”

In response to a subsequent question about whether the SEC should mandate disclosures about how companies manage their employees, Clayton said such disclosures have not kept pace with changes in the business environment but did not commit to any rulemaking.

“I think we have seen in the last three to four economic cycles, the asset side of a company’s balance sheet shifted substantially from plant, property, equipment to what I would call more intangible, including human capital,” he said. “If you look at the MD&A [management’s discussion and analysis] disclosure by companies, for example, it has shifted. But that shift probably has not been as significant as the shift on balance sheet. I personally would like to see more discussion of those assets, how companies look at them, deploy them, the return on them, how they develop them.”

Clayton’s discussion of disclosures about ESG issues, which are often combined under the umbrella of sustainability, occurred at a time when investors have lobbied the SEC to write rules that require public companies to provide more information about their business activities’ effect on the environment and society. Investors have asked electric utilities and manufacturers about their carbon dioxide emissions. They have wanted to know from energy companies and manufacturers that rely on raw materials how their operations and finances may be affected by climate change. For social issues, investors have pushed the SEC to write a rule that would require public companies to disclose their spending on political activities.

Separately, Clayton previously said he does not support an update to the SEC’s 2010 interpretive guidance in Release No. 33-9106, Commission Guidance Regarding Disclosure Related to Climate Change.

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