Nov. 09, 2018
November 9, 2018 Via email to rule-comments@sec.gov Brent J. Fields Secretary United States Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 Re: Request for rulemaking on environmental, social, and governance (ESG) disclosure (File No. 4-730) Dear Mr. Fields, On behalf of Vert Asset Management, I respectfully submit the following comments in support of Petition File No. 4-730 for rulemaking on environmental, social and governance (ESG) disclosure. Vert Asset Management (Vert) is a dedicated ESG fund manager. We work in close consultation with academic experts and experienced portfolio managers to create investment products that work for the wealth management community. Vert combines ESG research and a disciplined rules-based process to deliver funds that achieve investors’ twin goals of sustainability and market rates of return. As a business, Vert practices the triple bottom line approach by focusing on people, planet and profit. We are a Certified B Corp, a signatory to the UN PRI, and a contributor to 1% For the Planet. Vert is a member of US SIF: The Forum for Sustainable and Responsible Investment, who has called for robust ESG disclosure reporting since 2009. We are coming from the perspective of a disparate pool of investors - financial advisors and 401K plans - both looking for low cost asset allocation solutions. We roughly consider this the retail investor market which is comprised of both direct taxable accounts - 24%.2 of the US stock market - and indirect non-taxable retirement accounts such as defined contribution, defined benefit and IRAs - 37% of the US stock market - according to the Tax Policy Center. We have built a “40 Act” mutual fund that invests in publicly traded real estate investment trusts on sustainability criteria. Our fund holds approximately 60% of the publicly traded real estate investment trust market and applies a sustainability lens underpinned by the concept that the global economy is moving to a low carbon economy. We believe that meaningful disclosure is beneficial to a wide array of stakeholders. When looking at the task of constructing a market-like sustainable real estate portfolio – there was not one data provider that could comprehensively provide all the data points we were looking for and considered material to evaluating the real estate sector on sustainability in a robust way. Big name data providers had filled in missing data with modeled averages rather than company reported data. Fortunately, there are smaller data providers coming to market that are working to refine this process though they are not all found solely in the traditional investment community – they include data providers specific to real estate, to green building certifications, and to climate and flood risk. The lack of comprehensive, comparable and reliable data readily available to retail investors and financial advisors hinders investor efforts to most effectively incorporate ESG information into investment decisions. There is a mounting volume of literature pointing to the links between environmental, social and governance factors and corporate financial performance. One to note is the 2015 Deutsche Asset & Wealth Management and Hamburg University report titled “ESG and Financial Performance: Mapping the Global Landscape.” The team conducted a meta-analysis of over 2,000 empirical studies since the 1970s, making it the most comprehensive review of academic research on this topic. They found that the majority of studies show positive findings between ESG and corporate financial performance (CFP). “The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG–CFP relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time.” US regulatory requirements and voluntary efforts have failed to date to produce the consistent, comparable data that a rapidly growing community of retail and institutional investors seek to make investment and proxy voting decisions even when the marketplace is asking for some sort of SEC guidance. It is our understanding that the SEC received over 26,500 comments in response to its 2016 Concept Release on Business and Financial Disclosure Required by Regulation S-K, the overwhelming majority of which expressed a demand for more and better disclosure in general. Petitions and stakeholder engagement seeking different kinds of ESG information suggest that it is time for the SEC to regulate in this area. Disclosure should be transparent and easy to understand. It should be appropriate across all types of investors, from the average investor to the professional financial analyst. Every segment of the investor community should have equal access to all ESG information that is necessary, material, and decision-useful. We ask the Commission to require all registrants, regardless of size, to report annually on a comprehensive, uniform set of sustainability indicators comprised of both universally applicable and industry-specific standards. We are concerned that only institutional investors are able to properly ascertain the risks and opportunities of environmental, social and governance issues because they have resources and personnel capacity to research them. We are concerned that smaller investors may be at a disadvantage due to asymmetrical information. In support of Petition 4-730 and to address this information gap, we point to the French Energy Transition for Global Green Growth Law and its corresponding Article 173 which came into force in January 2016. Article 173 was designed to “strengthen mandatory carbon disclosure requirements for listed companies and introduced carbon reporting for institutional investors.” It requires that listed companies disclose financial risks related to climate change in their annual financial reports. If the Commission required something similar for all US listed companies the discourse in America around ESG issues for all participants in the retail investor market segment – from corporate board, financial advisor, to data provider, and the regular investor – would significantly change the understanding and concern for ESG issues in investment decisions. This would create a more equitable investment playing field in the understanding of risks and issues facing our economy. There is no need to reinvent the wheel with respect to reporting standards. There are several policy organizations who have been in conversation with companies and investors working to capture environmental, social and governance risk metrics over the last two decades. We would encourage the Commission staff to review several leading sustainability disclosure guidelines and frameworks, including the following which is not an exhaustive list: US SIF’s proposal in 2009, Task Force on Climate-Related Financial Disclosures Global Reporting Initiative (GRI) CDP (formerly known as the Carbon Disclosure Project) Climate Disclosure Standards Board UN Guiding Principles Reporting Framework Ceres/Investor Network on Climate Risk (INCR) Sustainability Accounting Standards Board (SASB) International Integrated Reporting Council (IIRC) UN Global Compact Dow Jones Sustainability Index and stock exchange listing requirements for sustainability disclosures In summary, Vert Asset Management encourages the Commission to promptly initiate rulemaking to develop mandatory rules for public companies to disclose high-quality, comparable, decision useful environmental, social, and governance information. Sincerely, Sarah Adams Chief Sustainability Officer & Co-founder Vert Asset Management Vert Asset Management LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. For more information please visit: https://adviserinfo.sec.gov/ and search for our firm name. This is not to be construed as an offer or a recommendation to buy or sell a security.