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The latter part of the year has seen a flurry of noise from US regulators as future approaches to Environmental, Social and Corporate Governance (ESG) requirements take shape, following rules which have already been in place in Europe since the spring.
Following the ESG-related disclosure requirements coming into affect across Europe in March, the CFTC established the Climate Risk Unit to assist the proactive effort to engage in the industry-wide ESG space while the SEC has begun to address ESG on multiple occasions. Most notably in its 2021 exam priorities, touching primarily on the importance of accurately representing the extent to which a firm is implementing Environmental and Social Framework strategies and evaluating ESG related matters.
The SEC has already begun to highlight inconsistencies between a firm’s practice and procedural approaches to proxy voting as an insufficient practice, specifically when firms’ operations do not line up with the procedures laid out. In addition, The October 14, 2021 release of the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) rule proposal, calls to stringently implement ESG factor considerations onto applicable parties.
Specifically, EBSA proposed the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule which calls “to clarify the application of (the Employee Retirement Income Security Act of 1974) ERISA’s fiduciary duties of prudence and loyalty to selecting investments and investment courses of action, including selecting qualified default investment alternatives, exercising shareholder rights, such as proxy voting, and the use of written proxy voting policies and guidelines.”
What can we expect in the coming months?
So far, the change of pace and tone comes as no great surprise, given the prominence of ESG as a key Biden administration agenda item, which we expect to accelerate as the US continues to fall behind the rest of the world in rolling out environmental consideration regulations.
In the meantime, we’re continuing to follow developments closely and supporting clients to proactively consider anticipated ESG considerations in the US and formalise approaches internationally.
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