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A Self-Correction for ESG
The U.S. Securities and Exchange Commission wound down its task force focused on companies’ environmental, social and governance (ESG) disclosures earlier this year, Bloomberg recently reported. This news follows blowback on ESG — both for the agency and for corporate initiatives.
Implementation of the SEC’s climate disclosure rule, adopted on March 6 — which would require companies to disclose material climate-related risks, including how boards oversee those risks — has been delayed as the rule makes its way through the courts. Meanwhile, companies such as Tractor Supply Co. have scaled back their ESG commitments, announcing in June it would refocus “on rural America priorities” such as agriculture and “being a good neighbor,” and eliminating the diversity and climate initiatives it had disclosed a year prior.
While an August Gallup survey indicated a declining interest from the general public in corporations weighing in on social and political issues, a fall 2023 survey of institutional investors found that 80% believed ESG factors affected an investment’s financial performance. And almost two-thirds told the survey group, which included Stanford University’s Graduate School of Business, that ESG provided a more complete view of a company’s risks, resulting in a more informed decision.
Those decisions require accurate disclosures, which is why the SEC established the task force in March 2021, amid greenwashing concerns and increased investor interest. But the expertise isn’t gone — it now resides across the agency, an SEC spokesperson told Bank Director. “If we see another uptick in misleading or false claims around ESG by issuers and ESG investing by advisers … we will use the same tools we’ve used in the past to hold those violators accountable.”
As evidence, the SEC continues to charge companies for inaccurate statements about values-based investment criteria and sustainability efforts. In September alone, it charged faith-based investor Inspire Investing for misrepresenting its investment criteria, resulting in a $300,000 penalty. And it settled with Keurig Dr Pepper over claims about the recyclability of its single-use coffee pods in its annual reports; the company agreed to pay a $1.5 million fine.
These types of enforcement actions fall under the SEC’s investor protection mandate — with or without a task force.
• Emily McCormick, vice president of editorial & research for Bank Director
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