ESG: is it for me?

Hey, it’s Andy here and I’m running around DC this week and I’m standing just outside the SEC, an agency I used to be on conference calls with every Friday, with the staffs of the CFTC, the US Treasury, The Federal Reserve Board, The Federal Reserve of New York and The White House. So it was pretty cool. And on those calls we took turns briefly sharing important things going on in all of our specific spaces. We had a lot of great discussions and I think really what helped me the most was it helped me understand what the other agencies did. But more importantly, what they spent their time focused on. And I think that was important. What amazed me during my time in DC was how similar the challenges were with so many of the different agencies and departments as they tried to understand the financial markets and really what the problems that were developing in those. And how they impacted the economy, with things like liquidity and structural or market dynamics, all these things impacted the economy.

And what I see going on today at the SEC with ESG is very similar to what we face at the SEC or at the CFTC with Bitcoin, but really with a different outcome. So with the Bitcoin, we had an unusual, digital financial product that was in high demand for retail investors and there were futures exchanges that wanted to create a contract based on Bitcoin. And really the entire top of the house at the CFTC dived into this but there was tremendous initial reluctance to approve an untested financial product, but eventually we all got comfortable with it. However, the SEC to this day has not, when it comes to Bitcoin and it hasn’t approved a crypto mutual fund or ETF citing ongoing fraud and manipulation concerns, and it feels the same way with ESG. They’re skeptical, but they’re looking into it now.

Now late in January, one of the recent proposals on governance by the SEC omitted even mentioning any disclosures on environmental, social or governance issues. SEC Commissioner Lee criticized the proposal for this omission, but Commissioner Pierce said she wasn’t ready to mandate that all companies determine materiality of ESG disclosures. And Chairman Jay Clayton said it’s unclear whether any rule making was needed at all on ESG. So for all you ESG fans, this means there won’t likely be official rules and regulations when it comes to defining ESG. And then that means that there will be wide latitude on what companies say they are doing on ESG, how that’s reported, and how investment firms decide to include or exclude them in ETFs in mutual funds targeting ESG.

I’ll be posting more in the future on ESG, hope this helps!