Dive Brief:

• Allison Herren Lee, acting chair at the Securities and Exchange Commission (SEC), said companies should disclose political donations, allowing investors to gauge adherence to environmental, social and governance (ESG) principles.

• "Political disclosure is key to any discussion of sustainability," Lee said in a March 15 speech, adding that many companies that made carbon-neutral pledges "have donated substantial sums to candidates with climate voting records inconsistent with such statements."

• Investors should be able to assess the follow-through by companies that have pledged to alter political spending in response to protests against racial injustice, Lee said, noting that the SEC is currently barred from finalizing a rule on political donations disclosure.

Dive Insight:

Since President Biden took office in January the SEC has taken several steps to increase its attention to ESG across its oversight and operations.

The Division of Examinations mentioned climate-related risks first in its description of priorities for 2021, and the Division of Corporation Finance plans to sharpen its focus on climate-related disclosure.

The SEC will also examine proxy voting practices "to ensure voting aligns with investors' best interests and expectations" and companies' "business continuity plans in light of intensifying physical risks associated with climate change," Lee said on March 3.

The Enforcement Division this month announced the creation of a Climate and ESG Task Force made up of 22 members from SEC headquarters, including the Office of the Whistleblower, as well as regional offices and "specialized units" within the division.

"Just as we've incorporated considerations related to, for example, cybersecurity and fintech into our exam and enforcement processes as the risks and impacts of those issues became more apparent, we are now doing the same with respect to ESG," Lee said on March 15.

Some companies that forgo ESG reports risk facing higher costs of capital, according to John Coates, acting director for the Division of Corporation Finance.

Many ESG-related issues are similar to risks that evolved from "invisible to visible to extremely clear, and clearly financial," Coates said in a March 11 statement, noting how asbestos hazards eventually became an essential topic for company disclosure.

Lee in her March 15 remarks said she sought public comment on climate disclosure. "It's time to move from the question of ‘if' to the more difficult question of ‘how' we obtain disclosure on climate," she said, advocating progress "toward a comprehensive ESG disclosure framework."

Lee pledged to cooperate with Treasury and other financial regulators inside and outside the U.S. in setting international sustainability standards.

"Climate change and other ESG factors, particularly racial injustice and economic inequality, require us all to come together and see the bigger picture in order for each of us individually to carry out our missions effectively," Lee said.