Comment Letter on the Need for Environmental, Social and Governance Disclosure

The Securities and Exchange Commission has proposed revisions to the disclosure process. See Concept Release, Exchange Act Release No. 77599 (April 13, 2016). Among other things, the Commission requested comments on the disclosure of environmental, social and governance (ESG) matters. The attached letter analyzes the comment letters, concluding that the letters for the most part reflect a consensus on three basic points: (1) The existing reporting regime with respect to ESG disclosure does not adequately meet the needs of shareholders and other investors. While some commenters believe that the problem can be solved through increased guidance and enforcement by the Commission, most do not. Instead, changes to the disclosure regime are needed; (2) In addition to ensuring the disclosure of material information (however defined), SEC requirements should be designed to promote uniformity, reliability and comparability of ESG disclosure; and (3) agreement exists on the need for a more robust regime for the disclosure relating to a company’s sustainability, with such analysis taking into account sustainability over a longer term horizon than is typically the case, address ESG issues where relevant, and include a qualitative analysis of efforts to reduce or remediate threats to sustainability. The letter analyzes the definition of materiality, concluding that the term is not limited to matters that will have a significant effect on earnings or operations in the short term. The letter further notes that the disclosure system is also built around the need for comparability, an approach that is not dependent upon the need to show the materiality of the information. To address the areas of consensus by commenters supporting increased ESG disclosure, the Commission should provide additional guidance on the applicability of existing disclosure obligations to ESG matters, adopt a prescriptive regime that requires disclosure of specific ESG matters that are important to broad segments of the investor community and common to all or most public companies, and add an additional Item to Regulation S-K that specifically addresses sustainability primarily through a principles based disclosure regime.