SEC Could Begin to Take ESG Stance on Company Disclosures

The Securities and Exchange Commission is starting to scrutinize whether or not companies are properly disclosing their involvement in environmental, social, and governance issues.

SEC Chairman Gary Gensler wants to charge companies who aren’t properly handling ESG disclosures, such as issues regarding “conflict minerals,” or whether companies import raw materials from countries that use the money to finance war, Fox Business reports.

The SEC could be looking into whether companies disclose so-called forced labor that appears within in their global supply chains, according to lawyers who told Fox on the condition of anonymity. The SEC could also monitor the racial diversity of corporate boards and whether companies are telling investors about meeting environmental standards.

Gensler’s aggressive regulatory push could come up against GOP opposition. Senator Pat Toomey, R-Pa., previously voted against Gensler’s nomination, arguing that his methods would “advance a liberal social and cultural agenda on issues ranging from climate change to racial inequality” that is outside the purview of the SEC.

“Issues such as diversity on boards are partly normative, or non-legal, and partly legal” for companies in terms of their disclosure, John Coffee, a professor of law at Columbia University and an expert at corporate disclosure, told Fox Business. “The SEC already requires much disclosure on how hard you are trying on diversity, and why you have not succeeded, but Gensler will likely increase that disclosure. And the two political parties will disagree.”

Securities lawyers anticipate the commission to bring forward a few cases to demonstrate its new direction on the ESG issue.

“They are trying hard to find cases,” one securities lawyer with knowledge of the SEC efforts told Fox Business. “My guess is that they will bring at least some small cases so they can say they’re doing something.”

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