GFMC report urges SEC to require transparency on threats from climate, racism, inequality
The report From Laggard to Leader warns that environmental, social, and governance factors threaten the stability of financial markets and provides eight recommendations for the SEC to bring about greater transparency and accountability.
A new report from the Global Financial Markets Center at Duke Law calls for more transparency and accountability regarding the way companies address environmental, social, and governance (ESG) factors that could destabilize financial markets.
From Laggard to Leader: Updating the Securities Regulatory Framework to Better Meet the Needs of Investors and Society comes out in advance of a Feb. 25 House committee hearing on the threats climate change poses to companies and the U.S. economy and the lack of information being provided about those risks. Its release also comes just after extreme weather caused power and water outages across Texas, resulting in dozens of deaths and billions of dollars of property damage.
The report asks the Securities and Exchange Commission, which “sets the rules for capitalism,” to take bold action to ensure that all companies operating in the U.S. identify, assess, and disclose the risks presented by ESG factors, including disruption of supply chains, strained work forces, sudden and widespread asset deflations, and the obsolescence of entire business models and industries.
“President Biden has declared that addressing the fallout from the pandemic, combatting systemic racism, addressing climate change, and reversing the collapse of the working class will be central to his vision for our economic recovery,” said Lee Reiners, executive director of the GFMC, who co-authored the report with Tyler Gellasch, Fellow of the GFMC.
Added Gellasch: “Accomplishing these essential goals will be difficult unless the SEC moves quickly to align capital markets around addressing long-term risks and opportunities shared by workers, companies, investors, and communities. This report provides the SEC’s new leadership with a roadmap for restoring accountability in our capital markets.”
The report’s recommendations for the SEC include:
- Restoring public accountability to unregulated private markets
- Requiring enhanced public ESG-related disclosures
- Enhancing stakeholder rights and engagement
- Modernizing expectations for investment fiduciaries
- Promoting integrity of ESG-related labeling of investment funds and products
- Enhancing oversight of credit rating agencies and index providers
- Enhancing auditing and accounting rules and enforcement
- Revising the SEC’s staffing and structure to prioritize ESG integration
From Laggard to Leader: Updating the Securities Regulatory Framework to Better Meet the Needs of Investors and Society was funded by the Tipping Point Fund on Impact Investing.