The US financial services sector should reassess its “prescriptive” approach to addressing environmental and societal issues, according to one of the Securities and Exchange Commission’s (SEC) top staff.
SEC commissioner Hester Peirce spoke out in comments published on the regulator’s website and the magazine of Eurofi, a European financial services think tank.
“In the United States, the idea of enlisting the securities laws to achieve ESG objectives is gaining traction among activists and policy elites with a particular emphasis on requiring disclosure of specific ESG metrics,” she said.
In particular, she highlighted campaigners who have pushed for the US to follow the lead of the European Union in employing a detailed regulatory framework for ESG investing.
However, Peirce argued that common disclosure methods could “homogenize capital allocation decisions”.
“A single set of metrics will constrain decision making and impede creative thinking,” she said. “Unlike financial accounting, which lends itself to a common set of comparable metrics, ESG factors, which continue to evolve, are complex and not readily comparable across issuers and industries.
“The result of global reliance on a centrally determined set of metrics could undermine the very people-centered objectives of the ESG movement by displacing the insights of the people making and consuming products and services.”
Peirce also contended that the “European concept of ‘double materiality’ has no analogue in our regulatory scheme”, a reference to Europe’s move to align financial and ESG-specific reporting.
The EU began rolling out its Sustainable Finance Disclosure Regulation in March, bringing in new specifications for funds purporting to be “green” or “ESG” products. The bloc’s politicians are also developing a sustainable finance “taxonomy” to specify what investments or activities are deemed environmentally friendly.
“Hampering the ability of the markets to collect, process, disseminate, and respond to price signals by boxing them in with preset, government-articulated metrics will stifle the people’s innovation that otherwise would address the many challenges of our age,” Peirce said.
“Moreover, converging standards would be antithetical to our existing disclosure framework, which is rooted in investor-oriented financial materiality and principles-based requirements to accommodate the wide variety of issuers.”