/>iSEC Commissioner Peirce recently delivered a speech where she extensively criticized the recent emphasis on ESG among businesses, in particular the proliferation of mandatory ESG reporting frameworks. According to Commissioner Peirce, not only is “ESG [] a hopeless muddle,” but “asset managers hide behind ESG ambiguity to evade their obligation to investors,” “companies sometimes hide behind ESG ambiguity to evade their obligations to shareholders,” and “governments sometimes hide behind ESG ambiguity to evade their obligations to citizens.” In particular, Commissioner Peirce attacks “[t]he global embrace of corporate ESG reporting and target-setting,” which, in her view, “comes at a price: reduced economic growth.” In a common refrain among those objecting to regulations, Pierce opines that “[w]hen regulatory codes, instead of popular demand, drive corporate behavior, we lose the dynamism of the unplanned economy.”
While Commissioner Pierce's critique of ESG regulations, including mandatory reporting frameworks, is not particularly novel, there are two aspects of her speech that deserve close attention. First, Commissioner Peirce explicitly attacks the extraterritorial aspects of recent regulations by California and EU, stating that “California has adopted stringent ESG reporting rules, which it plans to impose on companies outside California too” and “Europe is trying to impose the costs of its particularly draconian regime on foreign companies so that European companies do not suffer alone.” This attack highlights the far-reaching nature of the California and EU regulations, and indicates the depth of opposition to these rules. Second, the fact that Commissioner Peirce decided to proffer this scathing critique of mandatory ESG reporting frameworks demonstrates that dismantling such regulatory frameworks will be a top priority if Peirce and her compatriots achieve power in the coming U.S. elections.
Asset managers, companies, and governments too often use the ambiguity swirling about ESG to their advantage and to the disadvantage of the constituencies—investors, shareholders, and citizens, respectively—they serve. What can we do to free ourselves of the ESG constraint on economic growth? First, we can reject the highly prescriptive ESG frameworks that so many jurisdictions are imposing on companies today in favor of a return to a principles-based disclosure regime that does not isolate and elevate an issue simply because it bears the ESG label. Second, we can insist that asset managers, corporations, and governments using other people’s assets to further an ESG objective show the link to financial value of that particular ESG objective or explain clearly that obtaining the ESG objective comes at a financial cost. Third, let us heed another hitchhiker’s guide . . . Don’t Panic!
