Bill calls for new ESG disclosure requirements in the Securities Exchange Act of 1934 and formation of a Sustainable Finance Advisory Committee.

By Paul A. Davies, James R. Barrett, and Kristina S. Wyatt

On September 20, 2019, the US House Financial Services Committee passed H.R. 4329, the ESG Disclosure Simplification Act of 2019. The bill formed part of a suite of bills addressing environmental, social, and governance (ESG) disclosures that were the subject of hearings in the House Financial Services Committee in July, as discussed in this blog post. While unlikely to become law under the current administration, the bill’s passage in the House Committee reflects the continuing drumbeat for reporting companies to issue additional ESG disclosures.

Overview of the Bill

ESG Disclosures

The bill would amend the Securities Exchange Act to require issuers to provide disclosures in their proxy statements describing the link between ESG metrics and the issuer’s long-term business strategy, as well as the process used to determine such impacts. The bill would also require the Securities and Exchange Commission (SEC) to adopt rules to compel issuers to disclose ESG metrics in any filing requiring audited financial statements.

The SEC would also be obliged to adopt rules defining ESG metrics. ESG metrics would be deemed de facto material in disclosures under the Securities Act and the Securities Exchange Act.

Under the bill, the SEC would be permitted, as it deemed appropriate, to incorporate any internationally recognized ESG standards that are independent and geared towards multiple stakeholders.

Sustainable Finance Advisory Committee

The bill would amend the Securities Exchange Act to create a permanent Sustainable Finance Advisory Committee. This Committee would report to the SEC within 18 months of formation, to identify the challenges and opportunities for investors in sustainable finance. The Committee also would recommend policies to facilitate the movement of capital toward sustainable investments, with a particular focus on sustainability. The Committee would further advise the SEC on sustainable finance and would communicate with interested parties.

The Committee would include up to 20 members with an interest in sustainable finance, including sustainable finance experts or individuals who represent organizations operating financial infrastructure, or organizations providing data and analyses that facilitate sustainable finance. The members may also represent insurance companies, pension funds, asset managers, depositary institutions, credit unions, or other financial institutions that facilitate investment in sustainable finance or manage risks associated with sustainable development.

Conclusion

Though the bill is unlikely to become law, this development indicates a desire to harness and direct the power of the markets towards sustainable finance and to increase transparency on ESG matters (similar to the approach taken in Europe). This trend likely will continue, and, in any event, the voluntary acts of lenders and asset managers will increase scrutiny of ESG performance in the US.