Three Things to Know About John Coates’ ESG Speech

Today, Corp Fin Acting Director John Coates delivered these encouraging remarks about a possible ESG disclosure framework. I say “encouraging” because I agree with nearly everything he said. Here are three things to note from John’s remarks:

1. Framework will need to be innovative – There is no one set of metrics that properly covers all ESG issues for all companies – so the SEC’s policy on ESG disclosures will need to be both adaptive and innovative. Over time, some issues evolve from “non-financial” to clearly financial.

2. Seven questions to ask – The process to create these standards will need to address these queries:

• What disclosures are most useful?
• What is the right balance between principles and metrics?
• How much standardization can be achieved across industries?
• How and when should standards evolve?
• What is the best way to verify or provide assurance about disclosures?
• Where and how should disclosures be globally comparable?
• Where and how can disclosures be aligned with information companies already use to make decisions?

3. The costs of not having standards – Interestingly, John’s discussion about the costs of not having these standards doesn’t address the urgency of the situation (although that’s implicit with the sheer number of all these ESG announcements by the SEC over the last few weeks). That’s probably a smart move. It avoids an unnecessary political battle. So I’ll say it for him. We don’t have time to dawdle anymore. We must act.

John focuses on the growing number of reporting frameworks – and how resource intensive that can be for companies to deal with. He focuses on the higher cost of capital for those companies that don’t provide ESG disclosures.

John doesn’t delve much into the definition of “material” – the day for that debate is coming soon…