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SEC commissioner: ESG standards attempt to ‘measure the unmeasurable’

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Summary

At a speech before a European financial services think tank, SEC commissioner Hester Peirce argued against environmental, social, and governance (ESG) standards for public companies, expressing concern that such standards are aimed at directing capital towards government-favored activities. Peirce argued that such standards are "trying to measure the unmeasurable" and would lead to a "green bubble" and undermine national sovereignty. The SEC under Chair Gary Gensler is proposing multiple ESG-related rules, but Peirce and fellow Republican commissioner Mark Uyeda are firmly against the rule changes.

Q&As

What concerns does SEC Commissioner Hester Peirce have regarding ESG standards?
SEC Commissioner Hester Peirce has concerns that ESG standards will direct the allocation of private capital to further government ends, create a green bubble, distort the flow of private funds, undermine national sovereignty and the rule of law, and attempt to measure the unmeasurable and quantify the unquantifiable.

What is the potential outcome of creating an international ESG standard?
The potential outcome of creating an international ESG standard is that the green bubble would be global, as would its collapse, and it would reverberate around the world instead of being confined to one jurisdiction.

What has the SEC proposed in terms of ESG-related rules?
The SEC has proposed a new climate-related disclosure mandate, another regarding human capital, and guidelines for ESG initiatives for investments.

What does Commissioner Peirce see as a more appropriate way to serve investors' needs?
Commissioner Peirce sees materiality-based standards as a more appropriate way to serve investors' needs.

How can companies derive value from their compliance efforts regarding ESG and anti-bribery and corruption?
Companies can derive value from their compliance efforts regarding ESG and anti-bribery and corruption by showcasing compliance quality, understanding and classifying economic activity in terms of its effect on complex metrics, and creating an understanding of how humans live and work in the world.

AI Comments

👍 This article does a great job of explaining the potential pitfalls of an international ESG standard and its potential to undermine national sovereignty.

👎 The article fails to mention any potential benefits of ESG standards, making it seem like the only possible outcome is negative.

AI Discussion

Me: It's about the SEC's attempts to create environmental, social, and governance (ESG) standards for public companies. The commissioner is arguing that these standards attempt to "measure the unmeasurable" and could lead to a green bubble that could burst and cause economic disruption.

Friend: That's really interesting. It seems like the SEC is getting ahead of itself with these ESG initiatives. It raises a lot of questions about whether or not such standards will actually be effective in the long run. It could also be challenging for companies to comply with multiple standards. What do you think the implications of this article are?

Me: I think the implications of this article are that the SEC should proceed with caution when creating new standards. The commissioner is right that it is impossible to measure the unmeasurable, so creating standards that attempt to do so could lead to unintended consequences. It's also important to consider the impact of the standards on companies, as they may be difficult to comply with if they are too complicated or costly. Additionally, the implications of this article could be that the SEC should focus on materiality-based standards rather than ESG standards, as these are more likely to meet the needs of investors.

Action items

Research the current ESG initiatives proposed by the SEC and their potential implications.
Analyze the potential risks of creating an international ESG standard.
Consider the potential benefits of materiality-based standards for investors.

Technical terms

Environmental, Social, and Governance (ESG): ESG refers to a set of standards that measure a company's performance in terms of environmental protection, social responsibility, and corporate governance.
Materiality-Based Standards: Materiality-based standards are standards that focus on the material aspects of a company's operations, such as financial performance, risk management, and compliance.
Sustainable Finance: Sustainable finance is the practice of investing in companies and projects that have a positive environmental, social, and economic impact.
Taxonomies: Taxonomies are systems of classification used to organize and categorize data.
Green Bubble: A green bubble is an asset bubble that is created when investors pour money into green assets without considering the risks associated with the investment.
International ESG Standard: An international ESG standard is a set of standards that is used to measure a company's performance in terms of environmental protection, social responsibility, and corporate governance on a global scale.