E, S, G and W: Examining Private Sector Disclosure of Workforce Management, Investment, and Diversity Data (U.S. House Committee on Financial Services, Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets)

Hearing	E, S, G and W: Examining Private Sector Disclosure of Workforce Management, Investment, and Diversity Data
Committee	U.S. House Committee on Financial Services, Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets
Date	December 8, 2022

 

Hearing Takeaways:

• Corporate Disclosure of Workforce Metrics and Human Capital Investments: The hearing considered the merits of having the U.S. Securities and Exchange Commission (SEC) adopt corporate disclosure requirements for workforce metrics and human capital investments. Subcommittee Democrats, Ms. Allen-Ratzlaff, Prof. Honigsberg, Prof. Rajgopal, and Ms. Seegull expressed support for increasing corporate disclosure requirements for workforce metrics and human capital investments, especially considering how companies were deriving a growing percentage of their value from intangible assets. They suggested that companies be required to disclose information about the total number of employees by type, the total cost of a company’s workforce, turnover rates, and employee diversity demographics at each level of the company. Subcommittee Republicans and Mr. Vollmer contended however that any new corporate disclosure requirements must involve information that was deemed martial to investors. Mr. Vollmer further cautioned that SEC did not appear to possess expertise on many workforce management and diversity issues. Subcommittee Democrats, Ms. Allen-Ratzlaff, and Ms. Seegull argued however that workforce metric and human capital investment information was material to investors and should therefore be disclosed.
  • Need for Management and Workforce Diversity Data: Subcommittee Democrats, Ms. Allen-Ratzlaff, and Ms. Seegull expressed support for having companies disclose data about their management and workforce diversity. They asserted that more diverse companies tended to make better decisions and that this information would provide insights into a company’s efforts to access and develop new sources of talent. Ms. Seegull indicated that companies were already collecting diversity data as part of their EEO-1 form filings with the U.S. Equal Employment Opportunity Commission (EEOC) and noted that this data was not being disclosed to investors. She commented that requiring the disclosure of this data would not impose pose significant additional costs on companies because the data was already being collected
  • Difficulties Associated with Collecting Workforce Data: Ms. Allen-Ratzlaff stated that current efforts to obtain corporate workforce data was “excessively” time consuming. She testified that it had taken her organization two very skilled data scientists over 130 hours to collect data on a discrete number of human capital metrics from the 100 largest U.S. employers. She commented that her organization’s challenges obtaining this corporate workforce data suggested that small retail investors would face even more difficulties obtaining this data.
  • Growth of Net Loss Firms: Prof. Honigsberg highlighted how an increasing number of public companies reported losses for accounting purposes and stated that analyzing the operational costs of these firms was therefore increasingly important to understand the value of these costs. She indicated that labor was likely to be the greatest operational cost for these firms. She also stated that commonly used valuation techniques, such as price-to-earnings (P/E) ratios, could not be used to evaluate net loss firms.
  • The SEC’s 2020 Amendments to Regulation S-K: Subcommittee Members noted how the SEC had adopted amendments to Regulation S-K to require public companies to include a description of human capital resources in August 2020. Subcommittee Ranking Member Brad Sherman (D-CA) expressed concerns that this policy did not put the disclosures in a form that people familiar with balance sheets and income statements would recognize. Subcommittee Republicans and Mr. Vollmer argued however that this 2020 rule was sufficient and enabled companies to address the workforce issues relevant to their own businesses. They asserted that policymakers should first observe this rule’s effects before pursuing additional policies.
  • Impact on U.S. Competitiveness: Subcommittee Chairman Sherman and Ms. Seegull contended that SEC action on human capital management disclosure was a matter of U.S. economic leadership and competitiveness. Ms. Seegull stated that global regulators were proposing their own disclosure frameworks for human capital management factors, which could put U.S. investors and corporations at an information disadvantage.
  • Potential Overvaluation of Corporate Intangible Assets: Rep. Bill Foster (D-IL) highlighted how 90 percent of the value of S&P 500 companies currently came from intangible assets. He expressed concerns that this high figure could suggest that there were excessive corporate valuations, which could ultimately trigger a financial crisis. He also discussed how GPT chatbots could potentially replace many workers, which could force a revaluation of many corporate intangible assets.
• Corporate Disclosure of Environmental, Social, and Governance (ESG) Metrics: The hearing also considered the merits of having the SEC adopt corporate disclosure requirements for ESG metrics. Subcommittee Democrats, Ms. Allen-Ratzlaff, Prof. Honigsberg, Prof. Rajgopal, and Ms. Seegull stated that investors were demanding ESG information from companies to make more informed investment decisions. They noted how this information was often inconsistently and selectively reported and called for standardized disclosure requirement for this data. Subcommittee Republicans and Mr. Vollmer argued however that companies should already be required to report ESG information if the information were material. They alleged that the push for ESG information reporting requirements served as a means for pursuing climate and social policies that could not be accomplished through the normal legislative process. They also raised concerns that new ESG information reporting requirements would impose burdens and costs on companies, which could discourage them from going public.
  • The SEC’s Proposed Rule for Climate Change-Related Disclosure Risks: A key area of interest during the hearing was the SEC’s proposed rule that would require companies to report their climate change-related risks. Subcommittee Republicans and Mr. Vollmer argued that the rule did not satisfy the SEC’s materiality standard for disclosure requirements and would impose burdens and costs on companies. While Subcommittee Democrats and Prof. Rajgopal expressed support for the SEC’s proposed climate change-related risks disclosure rule, Subcommittee Chairman Brad Sherman (D-CA) and Prof. Rajgopal expressed concerns over the rule’s Scope 3 environmental disclosure requirements. Scope 3 emissions refer to a company’s indirect emissions that occur throughout a company’s value chain (both upstream and downstream). Prof. Rajgopal stated that Scope 3 data calculations could be burdensome for public companies. He also expressed concerns that the use of Scope 3 data could lead to the double counting of emissions across companies.
  • Concerns Regarding ESG Data Sources: Rep. Josh Gottheimer (D-NJ) expressed concerns that many ESG research firms were relying upon suboptimal sources for data. He highlighted how one major ESG research firm had relied upon information from the United Nations (UN) Human Rights Council (UNHRC). He called the UNHRC biased and alleged that the UNHRC had promoted antisemitism, undermined U.S. allies (including Israel and Taiwan), and selectively ignored human rights abuses around the world. He raised concerns that the use of suboptimal ESG metrics could cause investors to support things that contradicted their own values. Ms. Allen-Ratzlaff and Ms. Seegull argued that more standardized reporting requirements for ESG metrics could address Rep. Gottheimer’s concerns regarding the quality of ESG data.
• Impact of Limiting the SEC’s Disclosure Rules to Public Companies: Subcommittee Democrats and Prof. Rajgopal expressed concerns that disclosure rules under consideration at the hearing would only apply to public companies. They stated that the limited applicability of these rules could create incentives for companies to remain private and that these rules ought to apply to both public and large private companies (such as large private equity fund-owned companies). Rep. French Hill (R-AR) discussed how extensive corporate disclosure requirements could incentivize companies to remain private so that they could avoid the requirements. He also stated that extensive corporate disclosure requirements could increase the costs associated with going public, which would reduce capital formation options for small, mid-sized, and emerging growth companies.
• Subcommittee Republican Concerns with the SEC: Subcommittee Republicans and Mr. Vollmer expressed concerns with the SEC’s current functioning and called for increased Congressional oversight of the Agency.
  • Ambitious Rulemaking Agenda: Subcommittee Republicans and Mr. Vollmer criticized the SEC’s very ambitious rulemaking agenda. They argued that many of these new rules were impeding the formation of capital. They also stated that this ambitious rulemaking agenda was leading to shorter comment periods, worse rulemaking quality, and higher staff turnover.
  • Lack of Recent Congressional Oversight: Subcommittee Ranking Member Bill Huizenga (R-MI) expressed frustration that the Subcommittee and Full Committee had not held oversight hearings with SEC Chairman Gary Gensler for over a year. He pledged that House Republicans would provide robust oversight to the SEC and the Biden administration when they take the majority in January 2023.

Hearing Witnesses:

1. Ms. Cambria Allen-Ratzlaff, Managing Director and Head of Investor Strategies, JUST Capital
2. Prof. Colleen Honigsberg, Ph.D. in Accounting and Professor of Law, Stanford Law School
3. Prof. Shivaram Rajgopal, Ph.D. in Accounting and Professor of Accounting and Auditing, Columbia Business School
4. Ms. Fran Seegull, President, U.S. Impact Investing Alliance
5. Mr. Andy Vollmer, Senior Affiliated Scholar, Mercatus Center at George Mason University

Member Opening Statements:

Subcommittee Chairman Brad Sherman (D-CA):

• He indicated that the hearing would focus on corporate workforce disclosures to investors and remarked that investors were interest in workforce information.
  • He mentioned how the European Union (EU) had required companies to disclose their human capital investments since 1998.
• He noted that the U.S. did not require companies to disclose their human capital investments and indicated that only 15 percent of companies made these types of disclosures.
  • He also stated that there did not exist official standards for terms, relevant information, tabulations, internal controls, and audits related to these disclosures.
• He remarked that the U.S. economy had changed significantly since the creation of accounting standards and commented that the value of companies was no longer exclusively tied to physical assets.
  • He noted how the Working Group of Human Capital Accounting Disclosure had found that intangible assets now represented 90 percent of the value of a S&P 500 company (as compared to 17 percent of this value in 1975).
• He called it critical for the U.S. to establish workforce disclosure requirements and mentioned how a group of 26 institutional investors representing $3 trillion in assets had spent over five years petitioning the SEC to develop a framework for human capital information disclosures.
• He noted how the SEC had adopted amendments to Regulation S-K to require public companies to include a description of human capital resources in August 2020.
  • He commented however that this policy did not put the disclosures in a form that people familiar with balance sheets and income statements would recognize.
• He reiterated his call for establishing standard corporate workforce disclosure requirements so that investors could easily compare companies against each other in terms of their human capital investments.
  • He also stated that corporate human capital resource information needed to be tabulated in a manner with internal controls.
  • He further stated that the U.S. needed to audit the adherence to definitions, tabulation practices, and internal control systems that underlaid the human capital disclosures.
• He then indicated that the hearing would also address ESG issues and specifically expressed support for the SEC’s proposed Scope 1 and Scope 2 environmental disclosure requirements.
  • He commented however that the SEC’s proposed Scope 3 environmental disclosure requirements might be too ambitious.

Subcommittee Ranking Member Bill Huizenga (R-MI):

• He remarked that the hearing was not about investor protection, entrepreneurship, or capital markets and asserted that Subcommittee Democrats were instead focused on legitimizing the SEC’s “failed” policies.
• He stated that Congressional Democrats have been unable to legislate their climate and social policies and were relying upon unelected bureaucrats to carry out this policy agenda.
• He called the SEC’s pending climate change disclosure rule an example of overburdensome regulation.
  • He commented that this rule would involve the SEC establishing disclosure requirements for issues outside of their expertise, which would result in a complicated and confusing disclosure regime.
• He asserted that the SEC’s pending climate change disclosure rule would force companies to disclose information that was not material to their businesses.
• He also expressed his disappointment with both the Subcommittee and Full Committee’s lack of oversight of the SEC.
  • He expressed his frustration with the fact that the Subcommittee and Full Committee had not held oversight hearings with SEC Chairman Gary Gensler for over a year.
• He stated that several operational problems had marred SEC Chairman Gensler’s tenure and had prevented the SEC from carrying out its statutory mandate.
  • He asserted that the SEC was focused on advancing a “far-left, liberal agenda” that sought to impact every aspect of the U.S.’s capital markets.
• He also mentioned how an October 2022 SEC Office of the Inspector General (OIG) report had found that staff attrition at the Agency was at its highest rate in over a decade.
  • He commented that this high attrition diminished the SEC’s ability to protect investors, ensure adequate capital formation, and produce adequate rulemaking.
• He further criticized the SEC for its short comment periods, a recent technical error that disrupted the comment process, and its “complete lack of proposals” that would facilitate capital formation.
• He then mentioned how SEC Chairman Gensler had recently suggested that the SEC might promulgate a rule on equity market structural reform.
  • He indicated that this proposed rule will now be added to the SEC’s other 30 rule proposals that have been made in the last 11 months.
• He discussed how retail participation in U.S. markets had grown across every demographic and indicated that self-directed retail investors now comprise a “significant” portion of daily activity in U.S. financial markets.
  • He asserted that the current state of equity markets was the product of years of private sector innovation and prudent fact-based and public sector rulemaking.
• He remarked that market reforms should be developed transparently with input from affected stakeholders and with evidence that the proposed changes will achieve intended goals.
  • He contended that the SEC was currently failing to abide by this standard.
• He lastly pledged that House Republicans would provide robust oversight to the SEC and the Biden administration when they take the majority in January 2023.

Full Committee Chairman Maxine Waters (D-CA):

• She remarked that human capital disclosures were becoming increasingly important to investors.
• She mentioned how the U.S. House of Representatives had previously advanced the Corporate Governance Improvement and Investor Protection Act.
  • She explained that this legislation would reform the disclosure regime for public companies through requiring the standardization of several important ESG metrics.
• She noted how the SEC had also commenced their work to require corporate disclosures of ESG metrics and commented that the SEC’s actions were meant to address the needs of U.S. investors and workers.

Witness Opening Statements:

Ms. Cambria Allen-Ratzlaff (JUST Capital):

• She stated that her organization, JUST Capital, was an independent and non-profit research organization that was dedicated to measuring how the U.S.’s largest public companies create competitive value for their shareholders while also serving their workers, customers, communities, and the environment.
  • She asserted that a company’s shareholders would benefit when the company managed their stakeholder relationships well.
• She discussed how JUST Capital conducted annual surveys to identify the business issues that mattered most to the American public and then used publicly available data to quantify the performance of Russell 1000 companies in meeting those priorities.
  • She testified that the “vast majority” of this data was hand collected by her organization’s research team.
• She noted how JUST Capital built its annual rankings based on this collected data and leveraged this data to understand how performance translates into investment returns.
• She remarked that Americans were united in what they want companies to prioritize: workers, wages, and jobs.
  • She commented that these priorities were present across every single demographic group.
• She stated that JUST Capital’s thesis was that companies that were better at managing their stakeholder relationships tend to generate more returns for their investors.
  • She testified that an investor that purchased an equally weighted index of the top 100 companies in JUST Capital’s rankings (known as the JUST 100) would have generated over 6 percent in excess returns against the Russell 1000 from March 2019.
  • She also testified that an investor that invested in an index of companies scoring in the top ten percent in their worker stakeholder group from January 1, 2022 through December 1, 2022 would have generated an excess 9.29 percent return.
• She remarked that policies that benefited a company’s workers also benefited a company’s investors and commented that the U.S.’s corporate reporting systems had been slow to account for worker information.
• She noted that the only line-item data that U.S. companies are required to disclose on their workforce was headcount.
  • She indicated that this reporting standard was set in 1973 when over 80 percent of the S&P 500’s market capitalization came from property, plant, and equipment.
  • She indicated that 90 percent of the S&P 500’s market capitalization was now based on intangible assets.
• She stated that the U.S.’s financial reporting standards had lagged industry trends and commented that up to 90 percent of a company’s value might not be currently reflected in a company’s disclosed financial information.
• She mentioned how the Human Capital Management Coalition had urged financial and accounting standard setters to improve access to workforce data through a “balanced” approach, which involves principles-based disclosures that are anchored by four foundational decision useful disclosures that apply to all companies.
  • She indicated that these four disclosures were the figures for full-time, part-time, and contingent or contracted labor directly involved in firm operations, labor costs, labor turnover rates, and workforce diversity data.
  • She commented that the diversity data would provide insights into a company’s efforts to access and develop new sources of talent.
• She remarked that the absence of workforce data left investors unable to assess how companies manage their workforces and how such management practices would impact a company’s overall business, risks, and prospects.
• She stated that current efforts to obtain corporate workforce data were “excessively” time consuming.
  • She testified that it had taken two very skilled data scientists over 130 hours to collect data for JUST Capital on a discrete number of human capital metrics from the 100 largest U.S. employers.
  • She added that JUST Capital had concluded that much of this data was not available.
• She commented that JUST Capital’s challenges obtaining this corporate workforce data suggested that small retail investors would face even more difficulties obtaining this data.

Prof. Colleen Honigsberg, Ph.D. (Stanford Law School):

• She mentioned how she had recently joined other academics and former SEC Commissioners to establish the Working Group on Human Capital Accounting Disclosure.
  • She noted how this working group had petitioned the SEC in June 2022 to develop rules that would require public companies to disclose sufficient information to investors for assessing the extent to which firms made investments in their workforces.
• She contended that prompt action on labor cost disclosures was necessary due to two market trends: the growth of human capital firms and the increasing prominence of net loss firms.
• She noted that while an increasing proportion of public companies derive much of their value from intangible assets, she highlighted that only 15 percent of these firms disclose basic labor information (such as total labor costs).
  • She indicated that intangibles represented 17 percent of the value of firms in the S&P 500 in 1975 and that this figure had grown to 90 percent in 2020.
• She stated that the U.S.’s accounting standards had failed to account for this growth in corporate intangible assets and that these accounting standards provided varying treatments for different forms of investments.
• She asserted that investments in people received the worst quality accounting treatment as these expenditures were neither capitalized nor disclosed.
  • She commented that treatment of workforce investments created public company evaluation challenges as investors were unable to determine what portion of cash outflows should be considered an investment in a firm’s future growth and productivity and what portion of cash outflows merely allowed for firms to maintain current productivity levels.
• She then discussed how an increasing number of public companies reported losses for accounting purposes and stated that analyzing the operational costs of these firms was therefore increasingly important to understand firm value.
  • She indicated that labor was likely to be the greatest operational cost for these firms.
• She mentioned how more than half of U.S. public companies had reported negative earnings in 2020 and noted how many of these companies were young and technology driven.
• She stated that commonly used valuation techniques, such as P/E ratios, could not be used to evaluate net loss firms and that investors must instead project future earnings.
• She commented that these projections require reliable information about costs, margins, and scalability.
  • She noted however that this information was obfuscated under current accounting principles as investors did not receive a sufficiently detailed breakdown of a firm’s cost structures to identify contribution margins.
• She noted how the Working Group on Human Capital Accounting Disclosure had proposed three recommendations to address the aforementioned issues.
• She indicated that the first recommendation involved requiring managers to disclose what portion of workforce costs they believed to be an investment in their firm’s future growth.
• She indicated that the second recommendation involved treating workforce costs the same as research and development (R&D) costs.
  • She commented that this treatment would provide investors with necessary information to capitalize workforce costs in their own valuation models should they choose to do so.
• She indicated that the third recommendation involved disaggregating income statements to provide investors with more insights into workforce costs.
  • She noted that current accounting rules often aggregated many types of costs together under generalized headers, such as cost of goods sold or selling, general, and administrative expenses.
  • She asserted that investors needed more detailed information on specific operating costs (and particularly labor operating costs).

Prof. Shivaram Rajgopal, Ph.D. (Columbia Business School):

• He stated that while he was supportive of the SEC’s proposed climate risk disclosure rules, he indicated that he had “mixed feelings” about the SEC’s proposed Scope 3 environmental disclosure requirements.
  • He also expressed support for mandatory corporate disclosures related to compensation and workforce turnover and tenure for publicly listed companies.
• He then expressed support for the SEC’s efforts to mandate rigorous, comparable, and consistent data on corporate greenhouse gas emissions.
• He mentioned how he had participated in a research project that sought to assess whether the net-zero emissions pledges of 57 oil and gas companies were credible.
  • He testified that it took him and his colleagues six months to code the activities of these companies and stated that the underlying data was scattered across press releases, websites, SEC Form 10-K filings, and sustainability reports.
• He remarked that there was “tremendous variation” in terms of corporate approaches to achieving their net-zero emissions pledges and mentioned how companies followed multiple non-governmental organization (NGO) frameworks.
  • He added that the four main ESG ratings services provide environmental ratings that do not converge.
• He contended that the absence of rigor, consistency, comparability, and verifiability of climate risk disclosures would make it impossible to hold companies accountable for their carbon reduction promises to investors.
  • He commented that these concerns were especially pressing for ESG fund investors.
• He also stated that the SEC’s disclosure frameworks were agnostic to investor preferences regarding greenhouse gas emissions.
  • He commented that comparable and consistent greenhouse gas disclosures could even inform investors that want to bet in favor of high greenhouse gas emitting companies.
• He expressed concerns however over the SEC’s proposed requirement for public companies to disclose Scope 3 data and stated that Scope 3 data calculations could be burdensome for public companies.
• He also expressed concerns that the use of Scope 3 data could lead to the double counting of emissions across companies.
  • He posited a scenario where an oil company sold jet fuel to an airline company.
  • He noted that the emissions associated with this transaction would be considered Scope 3 for the oil company and the aircraft manufacturer and Scope 1 for the airline, which meant that the emissions would be counted three times.
• He stated that every Scope 2 or Scope 3 emission was someone else’s Scope 1 emission.
  • He asserted however that there needed to exist a disclosure system to verify whenever a company claims to make Scope 3 emissions reductions.
• He then discussed how companies create shareholder value through combining materials, labor, capacity, and managerial talent and asserted that modern income statements did not provide any of this information.
• He stated that human capital investment disclosures would help U.S. investors to understand a company’s intangible assets, the gains shared between labor and capital, the substitution of labor for artificial intelligence (AI), automation, and outsourcing, and spikes in abnormal turnover.

Ms. Fran Seegull (U.S. Impact Investing Alliance):

• She expressed her support for SEC efforts to create standardized corporate disclosures on human capital management factors.
• She discussed how her organization, the U.S. Impact Investing Alliance, was non-partisan and focused on supporting the growth of impact investing.
  • She described impact investing as making investments that create financial returns alongside measurable and positive social, economic, or environmental impacts.
• She stated that impact investors were motivated by a range of financial and value objectives.
  • She indicated that these motivations could include the creation of economic opportunities in historically underinvested communities and support for technologies and innovations that would promote sustainability.
• She remarked that all investors need access to corporate information that is material, reliable, and comparable so that they could express their individual or institutional priorities and invest their assets accordingly.
• She called on the SEC to pursue rulemaking on corporate disclosures for human capital management factors.
  • She stated that these factors should include the total number of employees by type, the total cost of a company’s workforce, turnover rates, and employee diversity demographics at each level of the company.
• She attributed her support for corporate disclosures of human capital management factors to the belief that a company’s workforce was one of a company’s greatest assets.
  • She commented that investors were “eager” to understand how companies attract, manage, invest in, and retain their talent.
• She remarked that a corporate disclosure requirement for human capital management factors would be consistent with the SEC’s mandate to protect investors.
  • She asserted that the current absence of this information was creating market inefficiencies, which harmed investors and weakened the financial system.
• She contended that it was in the long-term interest for both individual companies and the broader economy to be responsive in disclosing human capital management factors to investors.
• She remarked that human capital management factor disclosures would improve market efficiency and not impose significant burdens on issuers.
  • She commented that corporate leaders already navigate a “complex web” of private disclosure standards to best meet investor demands.
• She asserted that the SEC should standardize human capital management factor disclosures and stated that this standardization would create clarity and benefits for issuers, investors, and the broader markets.
• She lastly remarked that SEC action on human capital management disclosure was a matter of U.S. economic leadership and competitiveness.
  • She stated that global regulators were proposing their own disclosure frameworks for human capital management factors, which could put U.S. investors and corporations at an information disadvantage.
• She concluded that clear and consistent disclosures of human capital management factors would strengthen existing U.S. issuers and enable businesses to attract more capital.

Mr. Andy Vollmer (Mercatus Center at George Mason University):

• He asserted that policymakers should only impose new disclosure requirements on public companies when there was data or evidence of a strong need or a serious continuing harm that the private markets will not solve.
• He also stated that Congress should evaluate the costs and benefits associated with new disclosure areas.
  • He indicated that these costs include compliance costs and the overwhelming of investors with information.
  • He further stated that restrictions on personal freedom stemming from investor disclosure requirements constitute a cost.
• He remarked that the legislative proposals related to human capital management disclosures under consideration raised questions based on his aforementioned criteria.
• He questioned the necessity of increasing human capital management disclosure requirements and mentioned how the SEC had expanded required human capital management disclosures in 2020.
  • He also noted how the SEC had decided not to include extra metrics and statistical information so that each company could discuss the workforce issues relevant to its own businesses.
• He indicated that while additional disclosure requirements would impose costs on businesses (particularly compliance costs), he stated that these additional requirements would not necessarily produce benefits greater than those produced by the SEC’s 2020 rule.
• He then called on the Subcommittee to make progress on reforming the statutes and rules on capital formation.
  • He specifically stated that Congress could work to reduce obstacles set up by the public offering process, the complicated set of exemptions from that process, and the lengthy and burdensome set of disclosures that reporting companies must make.
• He lastly expressed concerns over how the SEC was currently managing and administering its work and noted how the SEC majority had proposed a long list of major rules in quick succession.
  • He commented that the SEC’s proposals had disserved the rulemaking process and the public.
• He remarked that the SEC’s “accelerated” rulemaking schedule had prevented the Agency’s staff from adequately developing and preparing draft rules and had denied “reasonable” amounts of time for the public to make comments on said rules.
  • He commented that this approach had diminished the quality of the SEC’s proposed rules and had caused lower staff morale and staff departures.
• He stated that Congress ought to consider actions to reform the SEC’s current approach to rulemaking.

Congressional Question Period:

Full Committee Chairman Maxine Waters (D-CA):

• Chairman Waters noted how the majority of public company CEOs have identified human capital as one of the most important and valuable assets within their companies. She mentioned how some companies still do not disclose their human capital information (including workforce diversity information) to investors. She also stated that there existed “widespread” differences regarding how companies disclose investments in their workforces. She highlighted how European companies were required to report human capital investments, salaries, bonuses, and other worker benefits, as well as the diversity of their boards of directors. She indicated that only 15 percent of S&P 500 companies voluntarily report this information. She mentioned how the Embankment Project for Inclusive Capitalism had found that U.S. companies that had voluntarily disclosed this human capital management information had outperformed the companies that had not disclosed such information. She asked Ms. Seegull to explain why workforce and human capital metrics (and particularly diversity-related information) were important to investors.
  • Ms. Seegull mentioned how the U.S. Impact Investing Alliance had joined nearly 50 investor and business organizations in June 2022 in encouraging SEC Chairman Gary Gensler to prioritize the development of human capital management disclosure requirements. She noted how this effort had called for the disclosure of corporate diversity data. She indicated that companies were already collecting diversity data as part of their EEO-1 form filings with the EEOC. She commented that requiring the disclosure of diversity data would therefore not impose an additional burden on public companies. She then mentioned how there was a Harvard Law School and Investor Responsibility Research Center Institute (IRRCi) report on materiality that assessed 92 empirical studies examining the relationship between human resources (HR) policies and financial outcomes. She stated that this report had concluded that there was sufficient evidence that human capital management information was material to financial performance and that human capital management information warranted inclusion in standard investment analyses. She highlighted how this report had found that workforce diversity was material to financial performance. She stated that corporate diversity corresponds with better financial performance and resilience, as well as a company’s ability to attract and retain talent. She further mentioned how the U.S. Impact Investing Alliance’s members made disclosures on the race, gender, sexual orientation, and disability statuses of their employees.
• Chairman Waters then noted how the SEC’s new proposed disclosure rules would only apply to public companies. She asked Prof. Rajgopal to comment on the benefits of extending these disclosure rules to privately held operating companies that issue unregistered securities and operating companies that were wholly or substantially owned by private equity funds. She highlighted how Staples and Petsmart were private equity-owned private companies.
  • Prof. Rajgopal remarked that ESG disclosure rules for public companies could create an incentive for these companies to go private, which would cause the information to remain undisclosed.

Subcommittee Ranking Member Bill Huizenga (R-MI):

• Ranking Member Huizenga asked Mr. Vollmer to confirm that corporate workforce management and diversity information would already need to be disclosed to investors if the information were considered material to investors.
  • Mr. Vollmer stated that the SEC’s 2020 rule would require workforce management and diversity information to be disclosed to investors if the information were considered material to investors.
• Ranking Member Huizenga asked Mr. Vollmer to indicate whether the SEC’s materiality standard for corporate disclosures had served U.S. investors well.
  • Mr. Vollmer stated that the SEC’s materiality standard for corporate disclosures had served U.S. investors “extremely well.”
• Ranking Member Huizenga asked Mr. Vollmer to indicate whether there existed a good reason to deviate from the SEC’s current materiality standard for corporate disclosures.
  • Mr. Vollmer remarked that a materiality qualifier should be included in any additional disclosure requirements that either Congress or the SEC adopts.
• Ranking Member Huizenga stated that Ms. Seegull’s testimony had called for public companies to disclose workforce data that they were already disclosing. He expressed his confusion regarding this request and suggested that Ms. Seegull’s testimony might be requesting that this information be disclosed through the SEC’s disclosure process. He then asked Mr. Vollmer to confirm that there were costs associated with forcing companies to disclose information that was not material to investors.
  • Mr. Vollmer remarked that the costs associated with corporate disclosures could be “extremely” high. He mentioned how the U.S. Supreme Court’s decision in TSC Industries, Inc. v. Northway, Inc. had warned that the absence of a materiality standard for corporate disclosures could lead a corporation and its management to face liability for insignificant statements or misstatements and shareholders to become overwhelmed with trivial information.
• Ranking Member Huizenga then noted how some Democratic SEC Commissioners had called for the imposition of ESG disclosure requirements on private companies. He highlighted how the SEC’s proposed climate change disclosure rule would indirectly impose disclosure requirements on private companies through the Scope 3 requirements. He elaborated that this proposed rule would require a public company’s suppliers (which may be private companies) to determine their greenhouse gas emissions, which he asserted would be burdensome and unworkable. He asked Mr. Vollmer to address whether the imposition of these emissions reporting requirements on private companies was concerning.
  • Mr. Vollmer remarked that the imposition of broad and extensive climate change disclosure obligations on private companies would be “extremely unwise.” He stated that these requirements would deter private companies from using the securities system to raise capital. He also stated that investors in private companies tended to be very sophisticated and know what types of information they will need to make investment decisions. He asserted that there was no need to require additional information disclosures from these companies.
• Ranking Member Huizenga also expressed concerns over the legality of requiring privately-held companies to make disclosures of non-material information. He then remarked that accounting principles were different from SEC-mandated disclosures. He asserted that policymakers would need to discern how corporate ESG disclosure mandates would ultimately help a company’s shareholders. He also stated that policymakers must ensure that they did not impose unnecessary regulatory burdens on companies (which would ultimately harm investors).

Subcommittee Chairman Brad Sherman (D-CA):

• Chairman Sherman noted how Subcommittee Ranking Member Bill Huizenga (R-MI) was using workforce metrics to evaluate the SEC’s performance and asserted that investors should have access to workforce metrics to evaluate the performances of public companies. He asserted that workforce metrics were material to investors. He raised concerns that public companies were not reporting sufficient information to investors and noted how companies now derived most of their value from intangible assets. He asserted that investors wanted more information about these intangible assets. He also remarked that the U.S. ought to require workforce metric disclosures from large private companies to ensure that public and private companies would be subject to similar disclosure requirements. He then noted how studies have shown that companies make better decisions when they have diverse leadership teams. He asked Ms. Allen-Ratzlaff to indicate whether companies should provide public disclosures around the diversity of their boards of directors, the diversity of their executive groups, or the diversity of their workers in the top five percent in terms of compensation.
  • Ms. Allen-Ratzlaff noted how companies varied in their disclosures around the diversity of their boards of directors and remarked that investors desire this information. She stated that investors were currently being forced to estimate the diversity of corporate boards of directors. She noted how there was research showing that companies with diverse boards of directors were more likely to make decisions that created value for their shareholders.
• Chairman Sherman interjected to note that some companies were currently making diversity information disclosures without universally accepted definitions, tabular displays, internal controls, and auditing. He asserted that there should exist standards for diversity information disclosures. He then thanked Prof. Rajgopal for highlighting the accounting challenges associated with Scope 3 environmental disclosures. He further stated that the U.S.’s failure to mandate investor disclosures that were being demanded would make the U.S. less internationally competitive.

Full Committee Vice Ranking Member Ann Wagner (R-MO):

• Vice Ranking Member Wagner expressed concerns that the SEC was deviating from its core mission of protecting investors and facilitating capital formation. She mentioned how she had sent a letter to SEC Chairman Gary Gensler expressing concerns over the SEC’s proposed rule to reform U.S. equity market structures. She asserted that this proposed rule appears to have been hastily developed and did not include any empirical evidence that the current U.S. equity market system for retail investors was broken. She remarked that the SEC’s proposed rule would harm retail investors and expressed her desire to question SEC Chairman Gensler about the proposed rule next Congress. She then asked Mr. Vollmer to address whether requiring the SEC to establish mandatory disclosures on issues outside of its expertise and mission would result in a complicated and confusing disclosure regime for investors and businesses.
  • Mr. Vollmer answered affirmatively.
• Vice Ranking Member Wagner asked Mr. Vollmer to indicate whether the SEC was the appropriate entity for determining reporting metrics and industry standards with regard to workforce management and diversity issues.
  • Mr. Vollmer remarked that the SEC did not appear to possess expertise on workforce management and diversity issues. He stated that some legislative proposals under consideration would require detailed disclosures in areas where the SEC lacks expertise. He stated however that the SEC was competent on some workforce matters.
• Vice Ranking Member Wagner asked Mr. Vollmer to indicate whether the imposition of additional disclosure requirements on companies would help to increase capital formation and encourage companies to go public.
  • Mr. Vollmer remarked that raising the compliance costs associated with corporate disclosures would deter companies from going public, which would in turn deprive retail investors of investment opportunities. He noted how most retail investors could not access private market offerings.
• Vice Ranking Member Wagner asked Mr. Vollmer to describe how the SEC lacks statutory authority to adopt its proposed climate change disclosure rule.
  • Mr. Vollmer mentioned how he had submitted two comments on the SEC’s proposed climate change disclosure rule. He indicated that the first comment provided a legal analysis of the SEC’s lack of statutory authority to issue their climate change disclosure rule. He stated that the disclosure framework under the Securities Act of 1933 was only focused on subjects related to a company’s valuation. He indicated that these subjects included financial performance, financial statements, the company’s business, and the types of securities being offered. He asserted that the SEC’s proposed climate change disclosure rule would constitute an impermissible deviation from this approach. He stated that only Congress could authorize the SEC to pursue climate change disclosure policies and that Congress had not provided such authorization.
• Vice Ranking Member Wagner interjected to ask Mr. Vollmer to address the precedent that would be established if the SEC continued to pursue its climate change disclosure rule.
  • Mr. Vollmer noted how federal courts were “very concerned” about federal agencies exceeding their statutory authorities. He commented that these excesses would lead to unelected officials setting U.S. government policies.

Rep. Bill Foster (D-IL):

• Rep. Foster highlighted how 90 percent of the value of S&P 500 companies currently came from intangible assets. He expressed concerns that this high figure could suggest that there were currently excessive corporate valuations, which could ultimately trigger a financial crisis. He mentioned how a 2019 paper titled “Capitalism without Capital” had detailed the dangers associated with having firms with overvalued intangible assets. He also discussed how GPT chatbots could potentially replace many workers, which could force a revaluation of many corporate intangible assets. He asked Ms. Allen-Ratzlaff and Prof. Honigsberg to address his concerns over inflated evaluations of corporate intangible assets considering the prospects for disruptions of workforces from AI applications.
  • Ms. Allen-Ratzlaff called it significant that 90 percent of the value of S&P 500 companies currently came from intangible assets. She asserted that the SEC’s role was to ensure that investors had access to relevant information so that investors could make informed investment decisions. She stated that many investors were concerned over their inability to assess how companies were managing their workforces. She mentioned how the SEC had previously adopted a rule requiring companies to disclose their CEO-to-worker pay ratios. She noted how her organization had found 14 companies that could not provide this information and did not know how much they spent on their workforces. She stated that labor costs were a basic part of corporate income statements and commented that this inability to assess labor costs therefore suggested the existence of corporate balance sheet problems.
• Rep. Foster interjected to ask Ms. Allen-Ratzlaff and Prof. Honigsberg to address whether it was possible to discern whether treating one’s workers well led a company to be profitable or whether a company’s profitability led it to treat its workers well. He commented that the causal relationship between profitability and the treatment of workers could be ambiguous and bidirectional.
  • Prof. Honigsberg remarked that the lack of clarity around the impact of workforce investments underscored the importance of requiring more corporate workforce disclosures. She mentioned how a recent study had examined corporate capital expenditures and labor costs as a percentage of sales between 1991 and 2018. She indicated that this study had found that capital expenditures as a percentage of sales had remained relatively constant over this period while labor expenses as a percentage of sales had increased from about 28 percent to near 50 percent. She noted that while this study used European data, she presumed that the U.S. likely experienced similar trends over the same period. She stated that this type of data would enable the U.S. to identify decreases in labor expenses that might stem from AI applications.
• Rep. Foster asked the witnesses to identify studies on the topics being discussed during the hearing. He indicated that the witnesses could submit their recommended studies for the hearing’s record.

Rep. Warren Davidson (R-OH):

• Rep. Davidson first called for SEC Chairman Gary Gensler to testify before the Subcommittee. He also expressed his pleasure with the fact that Sarah Bloom Raskin’s nomination for Vice Chair of the U.S. Federal Reserve had been unsuccessful. He then raised concerns over how ESG considerations were being used to direct investment decisions. He stated that many of his constituents had expressed concerns that the use of ESG considerations were causing their pension funds to experience suboptimal returns. He also stated that many businesses had relayed concerns to him over having to engage in burdensome ESG disclosures at the behest of their larger customers. He asserted that ESG disclosures were unnecessary for informing short-term business lending decisions, even when using the most “alarmist” climate change projections. He asked Mr. Vollmer to indicate whether there existed a statutory basis for the prioritization of ESG considerations over fiduciary duties.
  • Mr. Vollmer answered no. He remarked that both fiduciaries and corporate boards of directors ought to work to produce maximum returns for their shareholders.
• Rep. Davidson also noted how Mr. Vollmer’s testimony had discussed the SEC’s accelerated rulemaking agenda. He commented that the SEC’s accelerated rulemaking agenda could pose problems for U.S. capital markets. He further stated that the U.S. Supreme Court’s recent decision in West Virginia v. Environmental Protection Agency had rendered many of the SEC’s recent actions illegal. He asked Mr. Vollmer to indicate whether the SEC was able to adequately promote U.S. capital markets considering the Agency’s current morale, staff retention, and leadership problems.
  • Mr. Vollmer stated that the SEC should focus more on capital formation and capital access issues.
• Rep. Davidson expressed agreement with Mr. Vollmer’s statement and expressed concerns that the Biden administration officials did not share this view. He expressed particular concerns that many Biden administration officials lacked private sector work experience. He then mentioned how Prof. Honigsberg had previously participated in a podcast with Stanford Law Professor Joseph Bankman. He indicated that Professor Bankman is the father of former FTX CEO Sam Bankman-Fried. He noted how this podcast had discussed the importance of ESG reporting requirements. He stated that FTX’s recent collapse raised “interesting” questions regarding ESG considerations and mentioned how FTX had received a higher ESG rating than ExxonMobil. He asked Prof. Honigsberg to address whether FTX had warranted a higher ESG rating than ExxonMobil.
  • Prof. Honigsberg stated that it did not make sense for a cryptocurrency company to receive a higher ESG rating than many other companies in hindsight. She attributed ExxonMobil’s poor ESG rating to their resistance to feedback. She also stated that there were currently inconsistent measures for ESG and noted how companies could “cherry pick” amongst these inconsistent measures.
• Rep. Davidson commented that current ESG ratings systems were “terrible.”

Rep. Juan Vargas (D-CA):

• Rep. Vargas first provided Ms. Seegull with an opportunity to clarify her previous statement calling for public companies to disclose information that they were already disclosing.
  • Ms. Seegull noted how the EEOC already collected EEO-1 form data from large companies and indicated that this data was not being disclosed to investors. She stated that this data should be disclosed to investors. She also stated that this disclosure requirement would not impose significant additional costs on companies because the data was already being collected.
• Rep. Vargas then remarked that ESG disclosures were a market-driven initiative meant to increase investor education and corporate transparency. He stated that the information obtained through ESG disclosures provided investors with insight into how companies were reducing their carbon emissions and addressing issues like climate change, diversity, and labor rights. He remarked that ESG issues were material and needed to be accounted for when assessing market opportunities and risks. He stated that companies that implement sustainability strategies have experienced more innovation, higher operational efficiency, and better risk management. He stated that companies that pursued ESG programs had experienced better financial returns. He applauded SEC Chairman Gary Gensler for having the SEC pursue ESG disclosure policies. He also noted his intention to work on the Congressional Sustainable Investment Caucus in the upcoming 118th Congress. He then asked Ms. Allen-Ratzlaff to indicate whether ESG information was material.
  • Ms. Allen-Ratzlaff remarked that investors were already taking into account factors that might be considered ESG in their investment decisions. She also stated that materiality was not necessarily a requirement for disclosures. She noted how executive compensation disclosures did not satisfy a materiality standard and commented that these disclosures remained important.

Rep. French Hill (R-AR):

• Rep. Hill discussed how extensive corporate disclosure requirements could incentivize companies to remain private so that they could avoid the requirements. He also stated that extensive corporate disclosure requirements could increase the costs associated with going public, which would reduce capital formation options for small, mid-sized, and emerging growth companies. He mentioned how Congress had worked on a bipartisan basis to address these high costs. He then discussed how the 2017 Task Force on Climate-Related Financial Disclosures had called for climate-related disclosures to be timely, accurate, comparable within industries, measurable across industries, and not too costly. He noted however that this Task Force had concluded that climate-related disclosures were difficult to implement and recommended against the adoption of Scope 1, Scope 2, and Scope 3 disclosures. He stated that he was not necessarily opposed to corporate disclosure requirements and expressed his interest in pursuing disclosure rules that were least costly and that optimized benefits. He then asked Prof. Honigsberg to address whether workforce-related issues were being addressed through the SEC’s Generally Accepted Accounting Principles (GAAP) standards or the Financial Accounting Standards Board (FASB).
  • Prof. Honigsberg testified that she had discussed workforce-related issues with FASB and stated that FASB was considering income statement disaggregation proposals. She elaborated that FASB was considering proposals to separate the cost of goods sold into what portion was labor and what portion accounted for other elements. She commented however that FASB had a “relatively slow timeline” for pursuing these changes.
• Rep. Hill stated that industry groups should make recommendations to industry standard setters to reform workforce metrics. He commented that Congress and the SEC should not mandate standards for these metrics. He then asked Mr. Vollmer to indicate whether there had occurred a demonstrated need or market failure that necessitates a more prescriptive approach to the topic of corporate disclosures.
  • Mr. Vollmer stated that the SEC’s 2020 disclosure rule was reasonable and asserted that policymakers should first observe its effects before pursuing additional policies.

Subcommittee Vice-Chair Sean Casten (D-IL):

• Vice-Chair Casten mentioned how a 2020 U.S. Commodity Futures Trading Commission (CFTC) report had stated that climate change posed a “major” risk to the U.S. financial system’s stability. He noted how the U.S. Financial Stability Oversight Council (FSOC) had reached a similar conclusion in 2021. He further mentioned how the UN Intergovernmental Panel on Climate Change (IPCC) had found that climate change-related losses could approach $23 trillion annually absent changes. He remarked that investors should want to know who was contributing to climate change-related risks, how to hedge these risks, and who was most exposed to these risks. He asked Prof. Rajgopal to indicate whether markets were efficient in allocating risks if they had sufficient information.
  • Prof. Rajgopal answered affirmatively.
• Vice-Chair Casten listed the P/E ratios of several energy companies. He noted how First Solar’s P/E ratio was 189, NextEra’s P/E ratio was 30, Tesla’s P/E ratio was 55, ExxonMobile’s P/E ratio was 8, and Chevron’s P/E ratio was 10. He asked Prof. Rajgopal to indicate whether capital markets were efficiently allocating capital in response to climate change-related risks.
  • Prof. Rajgopal speculated that ExxonMobile’s low P/E ratio was likely attributable to an expectation of lower future demand for oil.
• Vice-Chair Casten stated that these differences in P/E ratios suggested that capital was chasing renewable energy in response to changing market demands. He stated however that the efficient allocation of capital was dependent on investors having complete information. He asked Prof. Rajgopal to indicate whether investors had sufficient information regarding the losses associated with climate change. 
  • Prof. Rajgopal answered no.
• Vice-Chair Casten expressed agreement with Prof. Rajgopal’s response and stated that the current absence of climate change-related information was undermining financial stability. He then mentioned how the First Street Foundation had recently estimated that more than 400,000 properties in West Virginia were at risk of being severely flooded within the next 30 years. He commented that this finding was notable given that West Virginia was not often perceived to be a state that was prone to flood risks. He asked Prof. Rajgopal to address whether a lack of information about flooding amongst insurers and mortgage providers would pose risks to the U.S. financial system.
  • Prof. Rajgopal noted how property and casualty insurers tended to offer one-year policies while investors in insurance companies tended to have longer time horizons. He commented that these differences in time horizons made it difficult to properly address risks in this market.
• Vice-Chair Casten noted how the aforementioned CFTC report had found that flood risk was being offloaded to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) in flood prone areas.

Rep. Alex Mooney (R-WV):

• Rep. Mooney criticized the Biden administration for its hostility to the fossil fuel industry and stated that this hostility had particularly harmed his state of West Virginia. He expressed particular frustration with how the Biden administration’s policies were impacting the coal industry. He noted how President Biden and his Congressional allies had been unsuccessful in advancing many of their climate change policy priorities through the legislative process. He asserted that President Biden was now relying upon financial regulators to bypass Congress to advance his climate change policy priorities. He noted how the SEC was currently pursuing a rule to require public companies to disclose all of their greenhouse gas emissions, including from their upstream and downstream providers. He noted how businesses throughout the U.S. had called this proposed rule costly and unworkable. He asked Mr. Vollmer to address how climate emissions data was actually material to an investor’s investment decisions. He suggested that the SEC’s proposed climate change-related disclosures rule could be a way to “name and shame” fossil fuel companies.
  • Mr. Vollmer remarked that federal securities laws already contained “extensive” disclosure requirements that cover all aspects of the financial performance and business of reporting companies. He stated that these disclosure requirements addressed all of the matters that would be relevant or important to investors. He asserted that there was no need for a separate set of disclosure requirements aimed at climate change-related risks.
• Rep. Mooney then stated that activists contended that ESG investing was morally responsible and more profitable. He asked Mr. Vollmer to compare the investment returns of ESG funds to the investment returns of non-ESG funds.
  • Mr. Vollmer remarked that there was “mixed” evidence regarding the performance of ESG funds relative to the performance of non-ESG funds. He also stated that this evidence was often dependent on survey methodologies. He remarked that policymakers should be skeptical of assertions that extensive ESG disclosures would produce benefits for investors. He commented that these assertions were not based on solid evidence.
• Rep. Mooney mentioned how West Virginia’s Treasurer had divested state funds from asset managers focused on ESG metrics. He called on policymakers to focus on business growth and not on “irresponsible” environmental policies.

Rep. Josh Gottheimer (D-NJ):

• Rep. Gottheimer recounted how Sustainalytics (which is the ESG research subsidiary of Morningstar) had used information from the UNHRC. He called the UNHRC biased and alleged that the UNHRC had promoted antisemitism, undermined U.S. allies (including Israel and Taiwan), and selectively ignored human rights abuses around the world. He stated that U.S. investors in ESG financial products had an expectation for ESG investment firms to provide unbiased and relevant data about how the investments would support ESG goals. He called Morningstar’s use of UNHRC data “completely unacceptable.” He asked Ms. Allen-Ratzlaff to indicate whether JUST Capital used UNHRC data as a source for human rights ratings.
  • Ms. Allen-Ratzlaff stated that she did not believe that JUST Capital used UNHRC data for human rights ratings. She testified that JUST Capital’s ratings were based solely on the priorities of Americans.
• Rep. Gottheimer asked Ms. Allen-Ratzlaff to indicate whether it was appropriate for ESG ratings firms to use potentially biased information from international organizations to develop their scores.
  • Ms. Allen-Ratzlaff remarked that there did not exist a single definition for the term “ESG,” which meant that different ESG ratings firms could define the term differently. She noted how JUST Capital was not an ESG rating firm and indicated that JUST Capital sought to assess how companies satisfied the expectations of U.S. workers.
• Rep. Gottheimer commented that the absence of an accepted definition for the term “ESG” could cause investors to be misled.
  • Ms. Allen-Ratzlaff expressed agreement with Rep. Gottheimer’s comment. She noted how 90 percent of Americans (including 86 percent of Republicans) say that it is important that there exist common and standardized reporting structures for companies. She stated that there currently did not exist high quality ESG information for investors. She then asserted that ESG information was useful to investors.
• Rep. Gottheimer then asked Ms. Seegull to discuss how the U.S. Impact Investing Alliance helped impact investors to evaluate ESG research to ensure that the investors did not inadvertently support outside efforts, such as the Boycott, Divestment and Sanctions (BDS) movement against Israel, or other efforts that might harm U.S. allies.
  • Ms. Seegull remarked that ESG ratings were often based upon publicly available information that was unverified and “cherry picked.” She stated that the U.S. Impact Investing Alliance encouraged its members to take ESG ratings under advisement and to assess the underlying methodologies of the ratings. She remarked that the absence of standardized and comparable data on material ESG factors made ESG investors reliant upon imperfect metrics.
• Rep. Gottheimer interjected to express concerns that many ESG metrics could be misleading and cause investors to support things that contradicted their own values.