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Regulation

SEC urged by institutions to mandate ESG disclosure

Institutional investors representing more than $5 trillion in assets are calling on the Securities and Exchange Commission to require public companies to uniformly disclose environmental, social and governance information.

In a rule-making petition filed Monday, a group of investors, state treasurers, public pension funds, unions, legal experts and ESG advocates asked the SEC "to promptly initiate rule-making to develop mandatory rules for public companies to disclose high-quality, comparable, decision-useful environmental, social and governance information."

Signers include the $360 billion California Public Employees' Retirement System, Sacramento; New York state Comptroller Thomas P. DiNapoli; Illinois state Treasurer Michael W. Frerichs; Connecticut state Treasurer Denise L. Nappier, Oregon state Treasurer Tobias Read, the U.N. Principles for Responsible Investment; and U.S. SIF: The Forum for Sustainable and Responsible Investment.

On a news conference call Tuesday, some of the signers of the petition argued that standardized disclosure is critical for evaluating companies' long-term performance and risk management. While some companies provide it, disparate reporting methods make it difficult for investors to compare companies or rely on the information for their investment decisions.

"We are doing this as a fiduciary looking to maximize returns," Illinois' Mr. Frerichs said. "It's not about our personal values. We are trying to create values for public companies." As long-term investors considering companies that focus on short-term profits, "we want to look and see other factors that could affect long-term risks. We'd like to see the SEC taking a lead," Mr. Frerichs said.

The lack of uniformity today "directly impacts our clients," said another signer on the call, John Hoeppner, head of U.S. stewardship and sustainable investments for Legal & General Investment Management America. "Sustained long-term corporate success cannot be analyzed in isolation. There is a need to broaden the analytics that link companies to society. It's very, very difficult for even large institutional investors to get the information they need to assess risk."

It will also help companies manage the growing demand for such reporting, said principal signer Cynthia Williams, a professor at York University Osgoode Hall Law School. Although 80% of large companies produce some kind of sustainable report, they are inconsistent and "in some cases, they are not reliable," due in part to a lack of guidance from the SEC, Ms. Williams said.

The petition noted the numerous existing rule-making petitions, investor proposals and stakeholder engagements on human capital management, climate, tax, human rights, gender pay ratios and political spending, and suggested that "it is time for the SEC to bring coherence to this area."