Legislation requiring public companies to disclose ESG metrics was narrowly approved by the House Wednesday.
The proposed Corporate Governance Improvement and Investor Protection Act received no Republican support, leaving its prospects uncertain as it advances to the Senate for consideration.
The White House supports the measure, saying in a policy statement that the legislation would make "important changes to the manner in which publicly traded companies account for and disclose certain activities and risks, including disclosures promoting greater equity, transparency, and enhanced investor protections."
If enacted, the law would require public companies to disclose ESG metrics and how they are connected to long-term strategies. Those metrics would also have to be disclosed in financial statements. The metrics would include climate risk, pay equity, executive compensation, political expenditures, and tax liabilities in the U.S. and elsewhere.
It also calls for the Securities and Exchange Commission to create the Sustainable Finance Advisory Committee to help identify ways to facilitate more sustainable investments.
The bill's lead sponsor, Juan Vargas, D-Calif., said in a statement that the required information will give investors more clarity and comparability into how companies are addressing ESG issues, "by developing a much-needed comprehensive ESG disclosure framework."
The Chamber of Commerce opposed the measure, saying in a letter that it would create an "unworkable, one-size-fits-all disclosure regime for public companies," impose enormous compliance costs on them and discourage smaller companies from going public.
The American Retirement Association supports changes to how companies address and disclose ESG issues. "Like any investors, many retirement plan investors consider disclosures about ESG-related risks, uncertainties, impacts, and opportunities as material, if not central, to their decision-making about investments," said an ARA letter responding to an SEC request for comment on how to proceed with climate risk and other disclosures.
