SEC Commissioner Hester M. Peirce expressed concern that an ESG disclosure rule-making could bring about myriad complexities and consequences, including playing a role in undermining financial and economic stability.
"The growing global concentration of capital in certain sectors or issuers deemed to be green could destabilize the financial system," Ms. Peirce said in a speech Tuesday at a virtual event hosted by the Brookings Institution. "Lots of money will be mandated to chase green investment opportunities. As with past regulatory efforts to drive investment toward particular sectors, current efforts to green the financial system could precipitate future financial instability."
The Securities and Exchange Commission is currently working on a rule-making for climate risk disclosure and received thousands of comments on the issue during a comment period that ended in June.
Chairman Gary Gensler, during his confirmation hearing in March before the Senate Banking Committee, said he supports more climate risk disclosure. "There are tens of trillions of investor dollars that are going to be looking for more information about climate risk," he said at the time, adding that "issuers will benefit from such disclosures" as well.
Ms. Peirce, one of two Republicans on the five-member commission, focused on environmental, social and governance disclosures as a whole during her speech Tuesday, and said that figuring out how to deal with ESG from a disclosure standpoint is complicated by the great and growing number of unrelated items it encompasses.
"Many rating firms exist now because people do not share uniform views of what good ESG practices are for issuers or good ESG portfolios are for asset managers," she added.
Ms. Peirce also questioned whether the SEC has the authority to issue a rule-making on the issue.
"To date, Congress has not granted authority to the SEC to address ESG issues for the purpose of promoting goals unrelated to the federal securities laws," she said. "Serious democratic legitimacy concerns arise when an independent agency expands its own authority."
Congress and state legislatures, "with their direct accountability to the American people, and civil society institutions are the proper venues for deciding political and social issues, which many ESG issues are," she added.
Instead of issuing a "prescriptive ESG rule-making," the SEC could work within its existing regulatory framework, Ms. Peirce said. "We could put out updated guidance to help issuers think through how the existing disclosure regime already reaches many ESG topics and to address frequently asked questions that arise in connection with the application of the existing disclosure regime," she said.
