ESG rule will focus on public companies, Gensler says

Regional director predicts a notice of proposed rulemaking by 21 October, vote in early 2022.

Gary Gensler
SEC chairman Gary Gensler says pending ESG disclosure rules will focus on public companies

The US Securities and Exchange Commission is focusing on public companies as it weighs mandatory ESG disclosures, chairman Gary Gensler has told the UN.

Saying he thought any sustainable disclosures should be “consistent and comparable,” Gensler added that he had “asked staff to consider whether these disclosures should be filed in the Form 10-K, living alongside other information that investors use to make their investment decisions.” Gensler was speaking remotely to the UN’s Principles for Responsible Investment on 28 July.

Comments on the pending rulemaking have been overwhelmingly favourable – Gensler claimed that they were running three to one in support of mandatory disclosures – but some powerful voices have also urged Gensler to include private fund advisers. BlackRock and T Rowe Price, for instance, have argued that imposing disclosures on public companies will leave too much room for arbitrage.

Autumn rulemaking

In a separate call on 28 July, the SEC’s Fort Worth regional director David Peavler said he expected the commission to propose new ESG rules for public companies on or before 21 October. The proposed rules could come for a vote as early as next April, Peavler said.

Gensler said he would like any new rules to focus on two other areas. First, he wants any disclosures to be what he called “decision-useful”.

“A decision-useful disclosure has sufficient detail so investors can gain helpful information – it’s not simply generic text,” Gensler said. “In appropriate circumstances, I believe such prescribed disclosure strengthens comparability.”


Gensler said the prescription is likely to include qualitative factors (“how the company’s leadership manages climate-related risks and opportunities and how these factors feed into the company’s strategy”) and quantitative ones (“metrics related to greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals”).

“For example, some companies currently provide voluntary disclosures related to what’s called Scope 1 and Scope 2 greenhouse gas emissions,” he said. “These refer, respectively, to the emissions from a company’s operations and use of electricity and similar resources.”

However, he added that “many investors” want to hear more about “Scope 3, which measures the greenhouse gas emissions of other companies in an issuer’s value chain. Thus, I’ve asked staff to make recommendations about how companies might disclose their Scope 1 and Scope 2 emissions, along with whether to disclose Scope 3 emissions – and if so, how and under what circumstances.”

Gensler said staff are also weighing whether specific industries, such as banking, insurance or transport, should get their own specific sustainable metrics.

‘Scenario analyses’

For the second area of focus, Gensler said he was considering rules requiring public companies to disclose how they plan to adapt to a “range of possible physical, legal, market and economic changes” that may come.

“That could mean the physical risks associated with climate change,” he said. “It also could refer to transition risks associated with stated commitments by companies or requirements from jurisdictions.”

Ninety-two percent of S&P 100 companies have promised to reduce emissions already, Gensler said. However, he added that the investing public needs to know a lot more than pledges.

“Even if they haven’t made such statements themselves,” the chairman added, “companies often operate in jurisdictions that have made commitments, such as to the Paris Agreement, that could lead to regulatory or economic changes within those locations. I’ve asked staff to consider which data or metrics those companies might use to inform investors about how they are meeting those requirements.”