Statement at the Meeting of the Asset Management Advisory Committee

Good morning. I want to thank this Committee for continuing your important work. We are entering the holiday season, but your efforts are clearly not letting up. Thanks to your dedication, as well as the tireless leadership of Ed [Bernard] and the supporting efforts of the Commission staff, you remain focused on the complex topics you committed to explore almost a year ago. I look forward to hearing from all of the Subcommittees slated to speak on today’s agenda; but I want to focus my remarks on ESG in particular, as the ESG Subcommittee will discuss the headway they are making toward developing a final recommendation.

To the members of this Subcommittee, I want to say: it is clear that you have devoted a lot of time to hearing from various organizations with interests in ESG-related investing. You have also studied issues related to “Environmental-,” “Social-,” and “Governance-” focused investing on your own. I have reviewed the draft recommendation you provided and would like to offer a few initial thoughts. First, I agree with several aspects of your potential recommendation, namely:

• That a prescriptive approach to mandating that public issuers provide “E-,” “S-,” or “G-” disclosures is not likely to strike the best balance between obtaining decision-useful information and minimizing burden on those issuers;
• That it is important to seek information that is tailored to the particular issuer rather than impose one-size-fits-all disclosure requirements; and
• That the SEC’s existing principles-based rule set, which is grounded in materiality, provides a good framework upon which to build.

That said, I want to let you know some of the questions I will be thinking about as you discuss your potential recommendation in more depth—and many of these are interconnected:

• First, how do you believe this recommendation would serve and benefit investors? I understand many in the asset management industry would like public issuers to provide more ESG information. But the SEC must understand how investors themselves are to benefit from any action we take.
• Second, investors have invested now around $2 Trillion into funds labeled “ESG,” “green,” and the like.[1] But, it is not clear to me that we understand these investors’ objectives, which (as you noted in your draft recommendation) may fall outside risk/return alone. SEC required disclosure is predicated on materiality to investors. Without knowing more about these investors’ goals—particularly those unrelated to risk/return objectives—how can we assess what information may be material to them when thinking about imposing new disclosure requirements?
• Third, why do you feel comfortable talking about ESG as one concept, when “E,” “S,” and “G,” are fairly distinct? For example, what more “G” disclosure is needed?
• Fourth, I have heard from public issuers who are considering how to fulfill investors’ requests for information about environmental or social information that they worry about the liability that comes with providing such information in publicly filed SEC documents. Did you consider ways to mitigate this cost, such as allowing this information to be furnished rather than filed with the SEC?
• Fifth, to the extent that the goal of this recommendation with respect to public issuers is comparability of disclosure—not new disclosure—why are disclosures of material information different if they happen to fall under the “ESG” umbrella when, in other contexts, we do not demand perfect comparability across all categories of material information?
• Sixth, there have been significant efforts in private ordering around ESG topics that have been valuable in furthering the same objectives sought in this draft recommendation. Have you considered the extent to which rule-based mandates might stifle the development of such currently evolving measures?
• Finally, to the extent that you are considering recommending that the SEC incorporate certain third parties’ disclosure guidelines into our rule set, have you thought about how the SEC should oversee those third parties? Also, should we extend our oversight further, for example, to ESG-index providers and ESG-rating agencies, since so many “ESG” funds and investment products are derivative of their work?

I will stop here for now, as these are the questions that I hope you think about today and in your continued deliberation. I am grateful to the ESG Subcommittee for bringing this potential recommendation, in draft form, to the full Committee for discussion. I am sure that everyone on the Committee will bring valuable perspectives to these questions, given the array of expertise represented from the various parts of the asset management industry. Before any final recommendation is presented, however, I hope you will engage with a variety of public issuers. After all, the bulk of the recommendation, in its current form, focuses on obligations only they will bear.

Again, I appreciate the work and thought that you are devoting to this undertaking. As always, my door is open to continuing this discussion, and I look forward to supporting you in your efforts.