Friday, April 23, 2021

NASAA applauds House efforts to push ESG, diversity reforms

By Amy Leisinger, J.D.

The North American Securities Administrators Association has provided views on several legislative proposals regarding environmental, social, and governance (ESG) disclosures, as well as diversity and inclusion. According to the organization, recently proposed bills would make strides toward offering information that investors may consider important in making decisions regarding their money.

Diversity. The amended Improving Corporate Governance Through Diversity Act of 2021 (H.R. 1277) would mandate that public companies make disclosures about the racial, ethnic, gender, and veteran status of their directors, director nominees, and executives. The bill also would require companies to disclose whether their boards have adopted any plans to promote diversity among these bodies and instruct the SEC Office of Minority and Women Inclusion (OMWI) to develop and publish "best practices" and establish a new Diversity Advisory Group made up of public and private representatives to study issues related to diversity and inclusion.

NASAA noted it has repeatedly called on Congress to examine corporate board composition with an eye toward encouraging diversity. Research indicates that greater board diversity is an indication of good governance, which improves both performance and investor relations, the organization said. NASAA congratulated the legislative committee for its decision to prioritize H.R. 1277 and urged its passage.

The Diversity and Inclusion Data Accountability and Transparency Act would amend the Dodd-Frank Act to require that regulated financial firms with 100 employees or more disclose diversity data. The legislation is designed to strengthen provisions enacted in 2010 that have failed to meet policy goals.

"It is striking and unfortunate that, despite relatively overwhelming evidence that a diverse workforce enhances a company’s ability to employ top talent, build employee engagement, innovate, and ultimately succeed, the financial services industry continues to significantly lag behind other large segments of our economy regarding the inclusion of women and people of color," NASAA stated.

By empowering the OMWI to require large, regulated firms to disclose their diversity data, the bill makes a step forward in giving regulators the tools to better understand practices related to diversity and inclusion in institutions they supervise, NASAA stated, and offered strong support for the legislation.

ESG. Under the amended ESG Disclosure Simplification Act of 2021 (H.R. 1187), the SEC would be directed to adopt rules to implement an ESG disclosure regime for public companies. Specifically, any registered or reporting company would have to disclose in its proxy statement or solicitation: (1) a clear description of the company’s views regarding the link between ESG metrics and long-term business strategy; and (2) a description of the process the company used to determine the impact of ESG metrics on long-term business strategy.

Investors are increasingly looking at ESG practices as a material metric in making investment decisions, NASAA said. However, there are no uniform standards for the reporting on these factors, and, as such, public companies lack certainty when making ESG disclosures, the organization explained. Investors should be entitled to understand factors relating to a company’s ESG profile and weigh ESG risks, NASAA opined.

NASAA has previously called for Congress to enact legislation that would direct the SEC to develop a uniform standard to ensure firm and investment comparability. This bill presents an opportunity to "move the ball forward," the organization concluded.