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The SEC Creates an ESG Task Force

Many companies have made the news recently announcing their climate initiatives. From Goldman Sachs to Citibank to Christie’s and FedEx, it seems that many leading American companies are hopping on the trend of prioritizing sustainability.

But how do we know that these companies are keeping their promises of cleaning up the planet? The good news for investors is that the U.S. Securities and Exchange Commission (SEC) has decided to revamp and proactively oversee ESG disclosure and compliance with the creation of a new task force. 

On March 4, the SEC announced that it will create a Climate and ESG Task Force to identify ESG-related misconduct by companies. Following an increase in investor demand for transparency and disclosure of ESG initiatives by publicly traded companies and funds, the SEC plans to use sophisticated data analysis and mining to identify violations.

The task force is part of SEC’s Division of Enforcement and will draw 22 members from various offices and specialized units. It will complement other efforts by the agency in the fields of whistleblower complaints and tips on ESG-related matters.

The creation of the task force comes after the agency recently said it will review climate-related disclosure guidelines for public company filings. These guidelines have been in place since 2010, but a lot has changed since then.

“Now more than ever, investors are considering climate-related issues when making their investment decisions,” said acting SEC chair, Allison Herren Lee, in a recent statement. “It is our responsibility to ensure that they have access to material information when planning for their financial future. Ensuring compliance with the rules on the books and updating existing guidance are immediate steps the agency can take on the path to developing a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures.”

The SEC plans to engage with public companies on ESG disclosure issues and make sure they not only comply with their obligations, but that investors also get the information needed to make investment decisions.

Investor surveys have repeatedly underscored investor frustration regarding the lack of transparency and confusion regarding how to find reliable ESG data for publicly listed companies and funds. Last year’s onset of the coronavirus pandemic was a major wake-up call when many investors, companies, and governments realized that many environmental and social issues can no longer be ignored.   

Two major rating agencies, MSCI and Sustainalytics, are leaders in the field of ESG Ratings. But many other firms have entered the market of ESG Ratings, making it more confusing for investors as to whose data is the most reliable.

Today’s, investors demand greater access to verifiable and consistent ESG information. In addition, the fact that more and more regulatory agencies are addressing this need is welcome news to many.

“Proactively addressing emerging disclosure gaps that threaten investors and the market has always been core to the SEC’s mission,” said acting SEC deputy director of Enforcement Kelly L. Gibson, who will lead the task force. “This task force brings together a broad array of experience and expertise, which will allow us to better police the market, pursue misconduct, and protect investors.”

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