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Pressure rising on SEC to standardize ESG disclosures

Environmental, social and governance disclosures are becoming increasingly common for public companies, but a lack of consistency in those disclosures is giving investors a headache, executives said at a meeting with the U.S. Securities and Exchange Commission Dec. 13.

Wall Street executives, academics and securities lawyers descended on the regulator's Washington office to discuss possible rule changes and guidance that the SEC could explore to standardize how companies provide information about the potential impacts from issues such as climate change, gender pay equality and the #MeToo movement.

"While ESG data is increasingly available today, the lack of standardization is a real challenge for investment managers," said Jennifer Bender, a senior managing director at State Street Global Advisors Inc., at the meeting.

Sustainable investing has seen a rush of interest from investors in recent years, with assets tied to ESG criteria now accounting for more than a quarter of the $46.6 trillion that is professionally managed in the U.S. The meteoric rise of sustainable investing has led many publicly traded companies to start describing how they expect certain ESG-related trends to impact their businesses.

These disclosures are not required to follow any particular format, which in turn has created frustration for portfolio managers and investors hoping to compare different companies' exposures to ESG-related issues.

The lack of a uniform disclosure requirement has led to different ESG ratings for the same company, based on different methodologies used by companies such as Bloomberg LP, MSCI Inc. and S&P Global Inc.'s TruCost. Publicly traded companies have also found that ESG requests and surveys can be "a significant time and resource burden," Travelers Cos. Inc. Associated Group General Counsel Yafit Cohn said at the meeting.

The meeting came two months after the SEC received a petition from roughly 60 entities calling for the regulator to develop a reporting framework for publicly traded companies' ESG disclosures. Many members of the SEC's Investor Advisory Committee, which hosted the meeting, called on the regulator to discuss the topic further, including Anne Simpson, California Public Employees' Retirement System's director of board governance and strategy.

"It's time now to bring this into the regulatory arena," Simpson said.

SEC Chairman Jay Clayton said he believes there is no need to broadly change the framework that guides publicly traded companies' disclosures. But the agency's head added that what goes into that framework "is something we need to continue to assess."