July 21, 2016
To whom it may concern,
As the former Chairman of the Sustainable Investing Committee of the New York Society of Securities Analysts who has held this role for perhaps the longest period of time in the committee's history, I believe that my perspective holds significant weight in the evaluation of the issues involved with respect to the concept release in question.
My comments will be brief.
Although I do not speak for NYSSA as an organization, NYSSA as an organization of investment professionals, stands at the pinnacle of prominence and respectability in the securities analysis field.As a long standing NYSSA member ( over one decade), I have had the good fortune of helping to organize and to engage with practitioners and theoreticians in the field of sustainability including a Nobel laureate who has openly expressed the view that certain alternative corporate governance frameworks may be capable of achieving an even greater level of overall societal and shareholder wealth than that achieved by prevailing corporate structures.
The point of the previous statement is not to advocate for any particular corporate form, but rather to simply remind us that Capitalism thrives on innovation, and such innovation includes potential improvements in or the creative disruptions of, the existing structures that embed and enable market mechanisms.These innovations may include the creation of new forms of corporate governance such as the Benefit Corporation, as well as new methods and techniques of accounting for and measuring corporate value creation.
I believe that the largest impediment to incorporating ESG (Environmental, Social and Governance)issues into investment analysis and hence the valuation process in an efficient manner is the lack of a market standard for ESG issues. This position is simple common sense and reflects the consistent expression of the 'state of the state' that I have encountered repeatedly from numerous market professionals who specialize in, or who otherwise consider ESG issues in security selection and portfolio construction.
It is crucial to understand that any institutionalized ESG market standards need not be 'perfect' in order to serve the 'good' of the market. We all know that existing accounting standards and financial metrics are continuously evolving in order to keep pace with changing business realities. Importantly, this evolution is premised on a pre-existing common understanding,an understanding that is always provisional, aspirationally universal and necessarily imperfect.
I believe the efforts of the SASB have been unprecedented and remarkably comprehensive in providing the required and necessary common understanding and starting point to create a market standard for ESG issues in the context of our current legal and regulatory regime.I do not believe that the history of financial standards adoption in the US has any precedent to the diligence, scope and comprehensiveness that the SASB has achieved.
In reviewing some of the comments provided to date on the concept release in question, I have a few observations.
First, it appears to me that the primary concern of some entities is with an apparent lack of representation in the SASB standards development process as well as general allegations of the SASB of not following ANSI procedures with respect to specific standards development.This criticism appears to me to misconstrue SASB intentions with respect to the ANSI process as well as to reflect particular as distinguished from the general market interest.These issues are easily and readily addressable through existing SEC procedures and protocol.
I would submit that as opposed to well organized associations of corporate actors, the market itself lacks a similar singular non governmental organized 'body' to represent its interests. In fact, it is the SEC, a governmental body, that is tasked with representing this 'general market interest'. Financial market participants 'proxy' for this general interest in the sense that they all share a common interest the appropriate disclosure of material information that allow market mechanisms to function properly.
Moving forward, it appears to me that it would be appropriate for securities analysts specializing in specific industries to impartially evaluate claims of particular industry associations and or companies with respect to particular SASB proposed standards in order to improve and enhance the informational quality and value of SASB standards to market participants.This would be an ongoing conversation, one that already occurs everyday in the capital markets and one that allows the general and particular interest to converge, however imperfectly, to improve market outcomes overtime and to therefore fulfill the mandate of the SEC.
However, this conversation requires the institutionalization of a general 'grammar' on ESG issues, and in my opinion, the SASB has achieved the state of the art in establishing this 'grammar'.
Steve Loren, CFA,FRM,MBA