House lawmakers consider additional disclosures of ESG, workforce data

House lawmakers discussed the potential for additional disclosures of environmental, social and governance investing data as well as workforce data at a hearing Thursday, with many Republicans reiterating their disapproval of the SEC's climate disclosure rule proposal.

"The Securities and Exchange Commission's pending climate disclosure rule is a primary example of overburdensome regulation done by administrative overreach, requiring the SEC to establish mandatory disclosures on issues outside their expertise," said Rep. Bill Huizenga, R-Mich., ranking member of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, at the subcommittee hearing.

The proposal, which the SEC unveiled in March, would require public companies to disclose a host of climate-related information in their periodic reports and registration statements, such as board oversight of climate-related risks and how identified risks could impact business.

Mr. Huizenga introduced a bill in the House last week along with Rep. Andy Barr, R-Ky., to block the rule proposal. Sen. Mike Rounds, R-S.D., introduced similar legislation in the Senate in September.

In his opening statement, Mr. Huizenga suggested that perhaps the "W" in the hearing's title, "E, S, G and W," stands for woke. Many Republican politicians have publicly criticized the ESG movement, calling it a "woke" investment strategy.

Subcommittee Chairman Brad Sherman, D-Calif., later corrected Mr. Huizenga, clarifying that "the W for today's hearing is providing workforce metrics."

"The only line-item data U.S. public companies are required to disclose on their workforce is headcount," said Cambria Allen-Ratzlaff, managing director and head of investor strategies at JUST Capital, a non-profit research organization, and co-chair of the Human Capital Management Coalition, a group of institutional investors advocating for human capital management as a critical component in company performance.

She said the Coalition has called for workforce-related disclosures to include four things: the number of full-time, part-time and contingent or contracted labor directly involved in company operations; labor costs; turnover; and workforce diversity data.

Rep. Ann Wagner, R-Mo., said in the hearing that she is "very troubled that the SEC is deviating from its core mission of protecting investors and facilitating capital formation."

However, Fran Seegull, president of the U.S. Impact Investing Alliance, an organization advocating for impact investing, said that rulemaking on disclosure of human capital management factors "is clearly consistent with the SEC's mandate to protect investors." She added that "transparency and accountability are the hallmarks of efficient markets."

Andrew N. Vollmer, senior affiliated scholar with the Mercatus Center at George Mason University, expressed concern that current disclosure documents "are already long, complicated and difficult to understand." He said that new disclosures would only worsen the issue.

SEC Commissioner Hester M. Peirce expressed similar concerns at a webinar hosted by the American Enterprise Institute on Wednesday. She said the agency's climate disclosure proposal could elicit investor confusion, as it calls for disclosure of potential future climate risks, which would "require companies to speculate about fundamentally unknowable risks."