On Wednesday, SEC Chairman Gary Gensler revealed that he had asked his agency’s staff to look into making companies disclose their climate-change-related risks, reported The Wall Street Journal. Staff is evaluating if companies should file the statements with their annual reports, the Form 10-K, which includes financial data and various information that investors use.
Making it a part of the filing process would require companies to be honest, accurate, and complete in their disclosures, something that isn’t currently required with only loose guidelines. If it were to become part of the reporting process, it would open up for SEC enforcement attorneys to investigate companies and their leadership for disclosure failures and fraud.
Current reporting only has some companies disclosing information, and even those companies often aren’t reporting the whole picture. What’s more, companies often don’t report in a manner that makes it easy to compare them to competitors.
“Investors today are asking for that ability to compare companies with each other. Generally, I believe it’s with mandatory disclosures that investors can benefit from that consistency and comparability,” Gensler said in a speech to Principles for Responsible Investment.
While the SEC has the authority to require disclosures from companies selling securities, there is pushback since climate change doesn’t equally affect every company’s bottom line and that disclosures should be outside of regulatory filings. There is also a concern and push for liability protections for companies making good-faith efforts to meet the requirements.
Proponents of greater regulation cite the existing issues for arguments for regulation; companies currently minimize their climate change risks or else oversell their sustainability practices.
Regulations and requirements could possibly include the greenhouse gas emissions that a company uses, that of the energy resources they use, as well as “scope three” emissions, or emissions from companies within the value chain.
PLDR Ahead of the Curve
The Putnam Sustainable Leaders ETF (PLDR) is actively managed and invests in companies whose focus on ESG issues goes well beyond just basic compliance but for whom ESG is an integral part of their long-term success. These companies have transparent goals and provide consistent, measurable progress updates.
PLDR invests larger percentages of its portfolio in fewer stocks, and the companies invested in by PLDR exhibit creative, proactive leadership in the sustainability issues that create long-term success, both for the company itself and the community as a whole.
As a semi-transparent fund using the Fidelity model, PLDR does not disclose its current holdings daily. Instead, it publishes a tracking basket of previously disclosed holdings, liquid ETFs that mirror the portfolio’s investment strategy, and cash and cash equivalents. The tracking portfolio is designed to track the actual fund portfolio’s overall performance closely, and actual portfolio reports are released monthly.
Holdings as of the end of June included Microsoft Corp. at 8.45%, Apple at 7.08%, and Amazon.com at 5.26%. The fund was heavily allocated to information technology stocks (31.84%), followed by health care at 15.27% and consumer discretionary at 14.96%.
PLDR has an expense ratio of 0.59%.