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Want something done? Ask a busy regulator

It’s an old saying with a grain of truth, if you want something done, ask a busy person. Which is exactly what 50 + major investment professionals have done by joining the Social Investment Forum’s request to the SEC for improved ESG reporting from US-listed companies.

The Social Investment Forum (SIF) and its co-signatories have written to SEC Chairman Mary Schapiro requesting that the SEC require companies to report:

  1. Annually on a cohesive set of sustainability indicators in accordance with the most up-to-date reporting frame work of the Global Reporting Initiative; and
  2. On other material ESG matters as they come to light.

As Manifest highlighted in its post on the Walker Review, there is an increasing appetite for a co-ordinated global approach to governance regulations and practices. SIF makes the same point on ESG issues noting a convergence of several investing trends which make a strong case for a mandatory disclosure rule in the United States:

  • An increasing number of investors are integrating ESG factors into their investment decisions and requesting greater disclosure from companies through voluntary initiatives and shareholder proposals.
  • Recent legal opinions have come around to the position that consideration of ESG factors in the investment process is not only permissible but also arguably mandatory for fiduciaries.
  • Several governments and regulators outside the United States — including those in France, Sweden and the United Kingdom — already require corporations to disclose various ESG factors.
  • A mounting volume of literature points to links between ESG factors and corporate financial performance.

From a voting perspective, the submission notes that during the 1990s, social and environmental proposals on average were supported by fewer than 10 percent of the shares voted. Today the picture is very different. A total of 28 shareholder proposals requesting ESG disclosures were filed in 2008, of which 23 were withdrawn after the companies agreed to produce reports on a voluntary basis. The remaining 5 proposals garnered an average support vote of 29.6% on a range of  26-40%.

The submission to the SEC also tracks the rise of consumer interest in ESG invesment issues as shown by the more than 560 global investment institutions with more than $18 trillion in assets under management that have signed onto the United Nations Principles for Responsible Investment since 2005.

The SEC’s work load shows no signs of diminishing so where this request will fit in remains to be seen.

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