Friday, May 27, 2022

House Democrats urge SEC to require disclosure of DEI employment data in future rulemaking

By John Filar Atwood

As the SEC continues to update its ESG disclosure regime, chairs of two House committees are urging the Commission to be sure that the disclosure includes corporate board, executive leadership and workforce diversity data. In a letter to Chair Gary Gensler, Rep. Maxine Waters (D-Calif), chair of the House Financial Services Committee, and Rep. Sherrod Brown (D-Ohio), chair of the House Banking, Housing, and Urban Affairs Committee, asked that the agency write rules to require the disclosure of standardized data of race, ethnicity, gender, sexual orientation, and disability status.

Waters and Brown commended the SEC for its October 2020 update to employee and workforce disclosure in Regulation S-K, which upended the longstanding requirement that companies only disclose the number of persons employed for the fiscal year. They noted, however, that while some companies supplied additional information about workers following the Reg. S-K revisions, the disclosures were minimal and inconsistent from company to company.

In their view, it is critical that investors be provided better data on human capital and diversity, equity, and inclusion (DEI). Research confirms that diverse boards lead to improved financial results, they said, and having a diverse workforce is equally as important.

Waters and Brown added their voices to the growing number of stakeholders calling for more clarity from companies on their DEI efforts. One area where that increase can be seen is in shareholder proposals. Over the past few years the long list of companies that have received a proposal asking for a report on corporate DEI programs include Pfizer, Verizon, Texas Instruments, Johnson & Johnson, and IBM.

Individuals with disabilities. The letter also cites the increased interest in having companies release data reported to the Equal Employment Opportunity Commission (EEO-1 filings). Waters and Brown are especially concerned that while there is precedent for gathering voluntarily data on race, ethnicity and gender through the EEO-1 filings, that data generally does not include individuals with disabilities.

They argued that collecting and publicly reporting data on disability status is important to closing the employment gap faced by individuals with disabilities. They asked the SEC to provide for disclosure of data on disability status in its rulemaking, and pointed to a recent letter signed by investors such as Bank of America, Voya Financial, the California State Teachers’ Retirement System, and New York State Comptroller that called on the companies in which they invest in to take steps to create an inclusive workplace for people with disabilities.

Waters and Brown also asked the SEC to require companies to track and share supplier diversity and procurements so that the company and its shareholders know how their investments are being spent and with whom. In a DEI-focused survey released by the House Financial Services Diversity and Inclusion subcommittee, they noted, it was determined that of the companies that responded to the subcommittee’s request, two-thirds reported a diversity spending policy but only half actually spent money with a women- or minority-owned business.

Congressional efforts. The letter concludes with Waters and Brown pointing out that the House attempted to address many of the DEI-related disclosure issues through the ESG Disclosure Simplification Act of 2021. That bill would require the Commission to issue rules to define ESG performance metrics, climate change-related risks, and workforce management practices, and mandate that companies must disclose how those metrics affect their business strategy. Providing guidance on human capital reporting is a priority for Congress and shareholders, they said, and now also should be a focus for the SEC.