SEC commissioner: ESG standards attempt to ‘measure the unmeasurable’

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Regulatory Policy

By Aaron Nicodemus 2023-05-02T20:34:00+01:00

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At a speech before a European financial services think tank, a Republican commissioner with the Securities and Exchange Commission (SEC) threw cold water on regulators’ attempts to create environmental, social, and governance (ESG) standards for public companies.

Speaking Friday in Sweden before EuroFi, Hester Peirce argued materiality-based standards—not ESG standards—best suit investors’ needs.

Peirce said ESG-specific standards “cannot help but direct the allocation of private capital, especially when they are combined with sustainable finance initiatives designed to encourage financing of favored activities and the defunding of disfavored activities.” This redirection of capital is not, she argued, meant to primarily serve investors’ needs “but rather to direct the allocation of private capital to further government ends.”

The SEC under Chair Gary Gensler has proposed multiple ESG-related rules , most notably a new climate-related disclosure mandate, another regarding human capital, and guidelines for ESG initiatives for investments. These proposals are likely to be approved by the Democrat-led SEC later this year; Peirce and fellow Republican commissioner Mark Uyeda are firmly against the rule changes.

Across the United States, backlash against ESG initiatives has swept through Republican circles like wildfire.

“This commandeering of private capital in the name of ESG causes me grave concerns,” Peirce said, later adding, “This effort—if undertaken to starve unsustainable activities of capital and flood sustainable activities with capital—necessarily entails understanding and classifying all of economic activity in terms of its effect on an increasing number of complex, sometimes mutually contradictory metrics. This task is impossible.”

She said the result of redirecting capital this way could cause a “green bubble,” where investors “pour money uncritically into green assets” until the asset bubble inevitably pops.

She also worried creating an international ESG standard would further distort the flow of private funds to favored activities and away from unfavored activities. The problems such taxonomies would create would reverberate around the world, instead of being confined to one jurisdiction, she said. The green bubble would be global, as would its collapse. An international ESG standard would also undermine national sovereignty and the rule of law, she argued.

“Collecting bushels of data to measure the unmeasurable and quantify the unquantifiable is an unreliable basis for deciding where to send capital, even if all these data create the illusion that we understand the world and how humans live and work in it,” she said.

Aaron Nicodemus

Aaron Nicodemus covers regulatory policy and compliance trends for Compliance Week. He previously worked as a reporter for Bloomberg Law and as business editor at the Telegram & Gazette in Worcester, Mass.

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Welcome to ComplianceWeek.com. This site uses cookies. Read our policy . Skip to main content. Skip to navigation. Compliance Week. Insert Logo text. Mast navigation. 7-Day Free Trial. Membership. Sign In. Search our site. Menu. Close menu. Home. Topics Back to parent navigation item Topics Accounting & Auditing AML Anti-Bribery Anti-Corruption Boards & Shareholders Cybersecurity Data Privacy ESG/Social Responsibility Ethics & Culture Europe Financial Services GRC Appointments Internal Controls Regulatory Enforcement Regulatory Policy Risk Management Sanctions Surveys & Benchmarking Supply Chain Technology Third Party Risk Whistleblowers Compensation GDPR Internal Investigations Opinion Training Culture GRC Announcements My Compliance Library Ask Amii Mailbag Nailed It or Failed It Risk and Regulatory Compliance Accounting and Audit. Training Back to parent navigation item Training Live Virtual Training Back to parent navigation item Live Virtual Training Workplace investigations On-Demand Training Back to parent navigation item On-Demand Training Ransomware response Demystifying ESG Cyber risks. Events Back to parent navigation item Events CW National Conference CW Europe Cyber Risk & Data Privacy Summit ESG Summit Excellence in Compliance Awards TPRM Summit Women in Compliance Summit. Webcasts Back to parent navigation item Webcasts Upcoming webcasts Back to parent navigation item Upcoming webcasts June 13: Privacy enforcement lessons learned June 15: Knowing third-party risks June 20: Compliance as HCM advantage June 21: Building business resilience. Resources Back to parent navigation item Resources e-Books Survey Reports Thought Leadership. 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Topics Accounting & Auditing AML Anti-Bribery Anti-Corruption Boards & Shareholders Cybersecurity Data Privacy ESG/Social Responsibility Ethics & Culture Europe Financial Services GRC Appointments Internal Controls Regulatory Enforcement Regulatory Policy Risk Management Sanctions Surveys & Benchmarking Supply Chain Technology Third Party Risk Whistleblowers Compensation GDPR Internal Investigations Opinion Training Culture GRC Announcements My Compliance Library Ask Amii Mailbag Nailed It or Failed It Risk and Regulatory Compliance Accounting and Audit. Training Live Virtual Training Workplace investigations On-Demand Training Ransomware response Demystifying ESG Cyber risks. Events CW National Conference CW Europe Cyber Risk & Data Privacy Summit ESG Summit Excellence in Compliance Awards TPRM Summit Women in Compliance Summit. Webcasts Upcoming webcasts June 13: Privacy enforcement lessons learned June 15: Knowing third-party risks June 20: Compliance as HCM advantage June 21: Building business resilience. Resources e-Books Survey Reports Thought Leadership e-Book: New audit risk landscape: ESG, cyber, more Provided by AuditBoard e-Book: Navigating changing U.S. data privacy landscape Provided by OneTrust Survey Report: Compliance tech priorities focused on TPRM in 2023 Provided by FTI Consulting. Magazine Latest special reports U.S. data privacy compliance Calling out compliance (2022 review) Home Depot compliance overview Digital Editions. CW Exclusives Case Studies Flex Sustainability Ransomware Attack Volkswagen Dieselgate Inside the Mind of the CCO Conference Recaps Annual Compliance Fails Ask a CCO. Membership New offering: Membership + Training bundle Join Compliance Week for one year and receive access to every article, special report, and video on our site in addition to unlimited live, instructor-led CLE/CPE training sessions. Individual Corporate Membership + Training. More navigation items. Regulatory Policy. By Aaron Nicodemus 2023-05-02T20:34:00+01:00. No comments. At a speech before a European financial services think tank, a Republican commissioner with the Securities and Exchange Commission (SEC) threw cold water on regulators’ attempts to create environmental, social, and governance (ESG) standards for public companies. Speaking Friday in Sweden before EuroFi, Hester Peirce argued materiality-based standards—not ESG standards—best suit investors’ needs. Peirce said ESG-specific standards “cannot help but direct the allocation of private capital, especially when they are combined with sustainable finance initiatives designed to encourage financing of favored activities and the defunding of disfavored activities.” This redirection of capital is not, she argued, meant to primarily serve investors’ needs “but rather to direct the allocation of private capital to further government ends.” The SEC under Chair Gary Gensler has proposed multiple ESG-related rules , most notably a new climate-related disclosure mandate, another regarding human capital, and guidelines for ESG initiatives for investments. These proposals are likely to be approved by the Democrat-led SEC later this year; Peirce and fellow Republican commissioner Mark Uyeda are firmly against the rule changes. Across the United States, backlash against ESG initiatives has swept through Republican circles like wildfire. “This commandeering of private capital in the name of ESG causes me grave concerns,” Peirce said, later adding, “This effort—if undertaken to starve unsustainable activities of capital and flood sustainable activities with capital—necessarily entails understanding and classifying all of economic activity in terms of its effect on an increasing number of complex, sometimes mutually contradictory metrics. This task is impossible.” She said the result of redirecting capital this way could cause a “green bubble,” where investors “pour money uncritically into green assets” until the asset bubble inevitably pops. She also worried creating an international ESG standard would further distort the flow of private funds to favored activities and away from unfavored activities. The problems such taxonomies would create would reverberate around the world, instead of being confined to one jurisdiction, she said. The green bubble would be global, as would its collapse. An international ESG standard would also undermine national sovereignty and the rule of law, she argued. “Collecting bushels of data to measure the unmeasurable and quantify the unquantifiable is an unreliable basis for deciding where to send capital, even if all these data create the illusion that we understand the world and how humans live and work in it,” she said. Aaron Nicodemus. Aaron Nicodemus covers regulatory policy and compliance trends for Compliance Week. He previously worked as a reporter for Bloomberg Law and as business editor at the Telegram & Gazette in Worcester, Mass. Follow. Topics. climate-related disclosure. ESG/Social Responsibility. Europe. Government. Hester Peirce. Regulatory Policy. SEC. Securities and Exchange Commission. United States. No comments. Interested in writing for CW? Compliance Week accepts outside contributions from corporate chief compliance officers and other senior-level GRC practitioners. To learn more, contact Editor in Chief Kyle Brasseur . googletag.cmd.push(function() { googletag.display('div-gpt-ad-B'); }); Related articles. Premium ESG reporting an opportunity to showcase compliance quality 2023-05-12T14:43:00Z Hassan Chaudry, director of compliance at Canada-based asset management firm Starlight Investments, shares his take on how companies can derive value from their compliance efforts regarding environmental, social, and governance and anti-bribery and corruption. News Brief SEC commissioner calls out pitfalls in regulators’ structured data efforts 2023-04-12T16:25:00Z SEC Commissioner Hester Peirce warned about “potential pitfalls” with structured data, which regulators and lawmakers have embraced as a way to make data accessible and easy to use. Premium Anti-ESG fervor catching fire with Republican lawmakers 2023-03-02T17:28:00Z The blowback against environmental, social, and governance initiatives in investments and corporate strategies is quickly building momentum in conservative politics, with nearly two dozen states proposing bills that limit ESG investments. No comments yet. You're not signed in. Only registered users can comment on this article. Sign in. Register. More Regulatory Policy. News Brief Treasury to review its compliance, enforcement efforts 2023-06-09T13:28:00Z The Treasury Department announced steps it is taking to improve its own compliance efforts, including a reassessment of the way it pursues enforcement actions. News Brief Banking regs seek consistency via new TPRM guidance 2023-06-08T13:50:00Z U.S. banking regulators combined to issue final guidance on managing the risks of third-party relationships that replaces the previous documentation each agency released individually. News Brief SEC rule prohibits manipulating CCOs at security-based swaps 2023-06-07T18:22:00Z The Securities and Exchange Commission adopted two rules aimed at curbing potential misconduct in the security-based swaps market. My CW. About Compliance Week. Help. Privacy Policy. CW Advisory Board. Terms and Conditions. Advertise. Reprints. Do Not Sell My Info. Issues. Customer service. Contact us. Topics A-Z. © 2023 Compliance Week. Connect with us to join the compliance conversation. Site powered by Webvision Cloud.