William Hinman, Director, SEC Division of Corporation Finance, recently gave his views on sustainability disclosures by public companies, among other topics.
According to Mr. Hinman, sustainability disclosures are a complicated topic. Investors want information, but do not agree on the types of sustainability disclosures that should be made. It is likely some of the information requested is not material under standards used by the SEC.
Mr. Hinman interprets the currently differing views on sustainability disclosures as the market evaluating what types of disclosure would provide consistently material and useful information. Allowing this evolution to continue should provide market participants with a continued opportunity to sort out the types of information they find useful. The SEC would have stymied this evolution if it had issued prescriptive regulation the first time an investor asked for it. Prescriptive regulatory solutions are not preferable to market driven solutions, according to Mr. Hinman. The SEC is watching carefully as market-led approaches develop in this area, and is actively comparing the information companies voluntarily provide – typically outside of their SEC filings – with the disclosure filed with the SEC.
Mr. Hinman also warned that imposing specific bright-line requirements can increase the costs associated with being a public company but not deliver the relevant and material information that market participants are seeking. Adding costly disclosure requirements that do not deliver commensurate benefits decreases the attractiveness of public markets, which in turn can reduce the number of public investment options available to all investors.