New initiatives from the U.S. Securities and Exchange Commission (SEC) are set to ring significant changes to the enforcement of environmental, social and government disclosures. But according to SEC Commissioner Hester Peirce, the current framework is already fit for purpose.
In an interview with Law360, Peirce warned against a more prescriptive approach from the agency, suggesting the current principles-based framework was already capable of handling these issues.
“We have a principles-based disclosure framework that is rooted in materiality and intended to be flexible so it can be used by issuers across industries. The materiality standard is derived from U.S. Supreme Court case law, which tells us that information is material if there’s a substantial likelihood that a reasonable investor would consider the information important in making a financial decision about the company. That’s an objective test that we can look at.”
On whether a new disclosure framework should be introduced, Peirce said securities laws are not the optimum tool for implementing policy preferences, with a better focus instead on ensuring more people can participate in capital markets.
“I worry about using the securities laws to implement policy preferences. Our capital markets are valuable and they’ve functioned very well to help people live better lives and achieve prosperity. Our goal should be to ensure that more Americans can participate in those capital markets. It shouldn’t be to inject political issues into the capital markets.”
Quizzed about the views of new SEC Chairman Gary Gensler on the matter, Peirce said it was still too early to speculate on his likely preferred direction.
“I have known Chairman Gensler for a long time, and he is knowledgeable about the capital markets and he loves the role that the capital markets play in the country. I’m sure he’s meeting with tons of people and hearing lots of different perspectives. And I’m sure that will continue as he settles in. So it’s just really too early for me to speculate about the approach that he’s going to take in this area.”
Commissioner Peirce’s comments point instead towards a need for a greater emphasis on access to capital, particularly as the U.S. economy begins to rebound from the aftermath of the COVID-19 pandemic.