WASHINGTON – U.S. Sen. Mark R. Warner (D-VA), a member of the Senate Banking Committee, called on the Securities and Exchange Commission (SEC) to establish an Environmental, Social, and Governance (ESG) Task Force following a new report by the Government Accountability Office (GAO) that revealed investors pursue reporting of non-financial indicators covering a company’s environmental, social, and governance practices. The report was a direct result of Sen. Warner’s effort to get more details on the extent to which firms currently report on ESG issues, and whether Congress and the Securities and Exchange Commission (SEC) should act to require such disclosures. Amid the COVID-19 pandemic, ESG reporting is particularly critical for investors in order to assess the impact of current and future health and economic crises on a company’s long-term performance.

“The COVID-19 crisis is exposing the myriad ways that company management practices pose operational and reputational risks for short and long-term performance. This GAO study finds that most institutional investors seek information on environmental, social, and governance (ESG) from companies to understand risks and assess long-term financial performance. Despite this, companies are most likely to report on conflicts of interest among board members and least likely to report on the number of hours of health and safety training for employees, number of data security incidents, and incidences of human rights infringements – exactly the kinds of issues that lead to operational and reputational risks for companies. Most institutional investors find current company financial disclosures limited in their usefulness, and augment company disclosures through burdensome engagement with the company, purchasing third party compilation data, or initiating shareholder proposals. It is time for the SEC to establish a task force to establish a robust set of quantifiable and comparable ESG metrics that all public companies can adhere to,” said Sen. Warner.

The SEC is considering issuing principles-based guidance on ESG reporting. Though this is a step in the right direction, the SEC would still leave it up to businesses to decide what kind of information to provide investors on ESG matters. To fill that gap, Sen. Warner introduced bicameral legislation to require public companies to disclose basic human capital metrics, including workforce turnover rates, skills and development training, workforce health and safety, and compensation statistics. Sen. Warner has repeatedly urged the SEC to revise and modernize Regulation S-K to require public reporting companies to disclose more qualitative and quantitative information regarding human capital. A similar framework of quantifiable and comparable metrics are needed for broader ESG issues.

Sen. Warner added, “The GAO report makes the need for comparable disclosure clear: even basic metrics like carbon dioxide emissions can be reported differently from company to company. It is time that the SEC grapple directly with the metrics that GRI and SASB have developed – which researchers have consistently found to be material to company performance – and issue guidance on quantifiable and comparable disclosures. I agree with the recommendations from the Investor-as-Owner subcommittee of the SEC’s Investor Advisory Committee: the ‘SEC is best-placed to set the framework for Issuers to disclose material information upon which investors can rely to make investment and voting decisions’ and the United States should be taking the lead on material ESG disclosure.”

Additionally, Sen. Warner has been an outspoken advocate of investing in workers and ensuring they are adequately equipped to participate in the 21st century labor force. Last year, the SEC announced a proposed Regulation S-K rule following advocacy by Sen. Warner, who previously urged the Commission to heed the calls of investors and utilize its rulemaking authority to require companies across the board to provide further details relating to human capital management. Sen. Warner has also sent a letter requesting that the SEC require companies to disclose specific metrics in addition to human capital resources, measures, and objectives. In May, Sen. Warner along with U.S. Rep. Cindy Axne (D-IA) urged the SEC to require that human capital management information is made publicly available in a timely and accurate manner to help determine whether a company will be successfully able to weather risks following the COVID-19 crisis – a critical issue for investors and the overall economy. 

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