ETF Edge: ESG Standards and Possible SEC Regulation

S&P Global’s president and CEO, Doug Peterson, and ETF Trends and ETF Database’s head of research, Todd Rosenbluth, both discuss ESG investing on this week’s “ETF Edge” hosted by Bob Pisani on CNBC.

Peterson opens by discussing the process that the S&P has for companies to provide their ESG metrics, something that can take them “hundreds of hours” to complete because of its level of detail. For companies that don’t provide sustainability information, relevant data is pulled from public reports, filings, and other sources and otherwise modeled to create an ESG analysis and score. Peterson believes this level of detail is important because it allows investors to make the best-informed decisions.

As of now, there is no standardized ESG framework or methodology in the U.S., but Peterson believes that the International Sustainability Standards Board (ISSB) is the way forward for standards for disclosures and ESG metrics.

“The ISSB is a foundation, and it’s supported by governments and individual companies. It’s funded… as if it was a foundation; it has a board of directors that includes people from the public sector and the private sector. It has a relationship with the international organization of security,” Peterson explains.

Same Standards Do Not Equal Same Investment Strategies

Standardization of ESG reporting by the ISSB is something that Rosenbluth believes is moving in the right direction, but he is careful to point out that even with the same baseline standards, there will still be a lot of variability in terms of investing in ESG.

“I think it’s also worth highlighting that even within the same index provider, they have different versions of ESG benchmarks that are narrowly constructed, that are broadly constructed,” Rosenbluth says. “There are ETFs that are tracking it that have S&P in the name, or that have MSCI or other index providers, and they’re going to perform differently because they’re either broad or narrow in construction.”

The SEC is looking to helm new rules surrounding ESG disclosures by companies with a meeting today, Monday, March 21, with more than 50 rules being considered by the regulatory commission. Peterson believes that they are rules that will receive a mixed reaction from corporations, with half of the industries supporting and half against, believing that the SEC is overstepping its authority.

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