Asset management giant BlackRock wants the US Securities and Exchange Commission to impose climate disclosures on the private funds market.
The commission is weighing rules that would require public companies to disclose ESG-related details. The rules would also set new metrics for sustainable, ethical and governance claims. BlackRock, which has $9 trillion in assets under management, is one of several firms telling regulators the proposed rules do not go far enough.
“We believe that for a climate-related disclosure framework to be truly effective,” the company said in an 11 June comment letter, “disclosure cannot be limited to the public markets but must also include private markets.”
BlackRock has promised to reach carbon neutrality in its investment schemes. It has been slow going. Some experts estimate the value of the firm’s coal investments to be around $12 billion; its oil-and-gas portfolios at $90 billion.
The 10-page letter was signed by BlackRock senior managing director Sandra Boss and managing directors Paul Bodnar and Elizabeth Kent. It urged the commission “to explore its existing regulatory authority to mandate climate-related disclosures with respect to large private market issuers”.
“Improving and standardizing climate disclosures across public and private issuers would benefit institutional investors (by increasing information for climate-related assessments), issuers (by avoiding multiple nuanced requests for information from various investors) and asset owners (by expanding transparency and reporting),” the letter stated. “As an investor in both public and private issuers, this equalized transparency would help us make more informed investment decisions with respect to climate-related issues in both markets.”
That seems to be a theme among investment advisers. T Rowe Price, for instance, says it is worried about public-private arbitrage that allows firms and funds to hide ‘dirty’ assets from plain sight.
“We encourage the Commission to consider using the same threshold that applies to private company 10-K reporting,” T Rowe Price director of research Maria Elena Drew and ESG director Gabriella Infante said in a letter to SEC secretary Vanessa Countryman. “This would avoid creating incentives to transfer businesses with high carbon intensity from public markets to private, which would perversely result in equal or greater greenhouse gas emissions with less transparency to investors.”
T Rowe Price’s recommendations are modest. Drew and Infante urge the commission to adopt principles-based rules; to focus broadly on governance, strategy, risk management and metrics; and to allow safe harbour for “good faith” mistakes. Like other large fund advisers, though, T Rowe Price said it was caught between client demand and unreliable data.
“We have started to make carbon footprint reporting available to our institutional clients, who are increasingly focused on climate change risk,” Drew and Infante said. “To do this reporting we purchase a data set from Sustainalytics that provides carbon emissions and intensity for a universe of more than 11,000 companies, of which nearly 75 percent of the companies have estimated data.”
The financial industry is not unanimous in its verdict. The Institutional Limited Partners Association, for instance, says the commission need not bother with private fund mandates. Set minimum standards for public companies, ILPA says, and private fund advisers will get the memo.
“If appropriate standards for minimum disclosures are established for SEC registrants,” ILPA CEO Steve Nelson said in his own letter to the commission, “these standards will subsequently influence private markets. In anticipation of potentially listing private fund portfolio companies, GPs will seek to align to the SEC standard. LPs, particularly those looking to measure climate implications across their public and private investment portfolios, will benefit from this alignment. Furthermore, LPs that currently struggle to collect climate-related information will benefit from SEC requirements, which will serve as a framework to encourage GP reporting alignment.”
Then there are those, such as Republican commissioner Elad Roisman, who are sceptical of the whole project. “It is tempting to think that the commission could provide one list of ESG disclosures for companies to make that would satisfy all demands for information,” he said in a 22 June speech to the National Investor Relations Institute. “But I am not sure that is a role we can play at this time.”
A version of this article first appeared in affiliate publication Regulatory Compliance Watch