INVESTORS?

The Morning Call ponders definitions

For months now, two SEC commissioners in particular – Gary Gensler, the Chairman of the Commission, and Allison Herren Lee, the former acting chairwoman – have insisted that it is absolutely imperative that they issue new corporate disclosure requirements on ESG data because “investors are demanding” that information.  This is their primary justification for diluting the materiality standard.  Investors want this.  Investors need this.  Investors are begging for this.  Just ten days ago, for example, in his testimony before the Senate Banking Committee, Gensler said the following about those planned disclosure requirements:

Today’s investors are looking for consistent, comparable, and decision-useful disclosures around climate risk, human capital, and cybersecurity. I’ve asked staff to develop proposals for the Commission’s consideration on these potential disclosures. These proposals will be informed by economic analysis and will be put out to public comment, so that we can have robust public discussion as to what information matters most to investors in these areas.


In July, conservative Commissioner Hester Peirce questioned whether this claim was accurate.  Actually, what she did was to say that the claim was wholly inaccurate and that the opposite was true:

Like ESG, “stakeholders” is a malleable term. It can encompass an issuer’s employees, neighbors, customers, suppliers, and regulators. As important as these groups are to issuers, they are not at the heart of the SEC’s mission, which is to protect investors, facilitate capital formation, and foster fair, orderly, and efficient markets. The Commission’s disclosure mandates generally address the information asymmetries that disadvantage investors.

Many non-investors have tried to repurpose the SEC’s investor-oriented disclosure tool to get information of interest to them and ultimately to shame issuers into changing their behavior. In a few instances, they have been successful. Pay ratio disclosure, for example, is of greater interest to the curious general public than to investors.  Similarly, Section 1502 of Dodd-Frank was designed, at the behest of humanitarian groups, to address violence in the Democratic Republic of the Congo, awkwardly and perhaps to bad result.

Individual and institutional advocates of ESG-related causes have drawn inspiration from these limited experiments. They hope to use the securities laws to force issuers to make disclosures about ESG issues important to them and ultimately to compel companies to make behavioral changes. They know that requiring public disclosures about particular employment or environmental activities might cause issuers to avoid those activities altogether, regardless of the costs of those changes to the investor.

Investors stand to lose from these changes.


Peirce’s response was almost entirely ignored.  One man who did not ignore it, however, is a cretin named Bob Eccles, who, in response, wrote one of the most aggressively condescending and belittling articles we’ve ever read.  Indeed, if the partisan roles were reversed, Eccles would have been tarred, feathered, and forced to apologize time and again for his rank misogyny.  But Peirce is a conservative, so…anything goes:

In her speech, Peirce notes a request from her fellow Commissioner Allison Herren Lee for comments on climate change. Yes, Commissioner Peirce, climate change is real. Peirce thought it helpful to point out that Lee’s request came on the Ides of March. In her typical soft dig sleight of hand, Peirce points out that “it was not a Commission request.” Nor did the SEC request Peirce to give her speech and here she gives the standard disclaimer “that the views I represent are my own views and not necessarily those of the SEC or my fellow Commissioners.” For this we can count our blessings….

This thesis is grounded in such a profound misunderstanding I feel like I’m playing chess with someone who’s playing checkers. Peirce natters on about existing ESG disclosure rules, misinterpreted academic studies, the EU’s focus on “double materiality,” and evaluating the ESG claims of fund managers and advisors. All of this is completely beside the point. No one is going to force the SEC to wander into domains where it doesn’t belong and doesn’t want to be. This is just one example of Peirce’s overarching narrative try to turn the issue into something it’s not. This is standard operating procedure for the palpably prolific Peirce: Politicize something that isn’t political and then complain about it being so.


Yikes.  The best part here, of course, is Eccles’ insistence that he is playing chess while Peirce plays checkers.  He doesn’t quite seem to grasp the fact that Peirce isn’t playing anything at all with him.  If Bob Eccles walked up to her on the street and started in with this spittle-flecked rant, Hester Peirce would probably call the police about the random lunatic harassing her.

Regarding the investor/stakeholder matter, Eccles grows even more unhinged:

Wow, this thesis really comes from outer space. Peirce complains that, like ESG, “stakeholders” “is a malleable term” that includes “employees, neighbors, customers, suppliers, and regulators.” (Gotta admit this is the first time I’ve seen “neighbors” on a list of stakeholders, but I’d like to be equally inclusive, so I will add “dog walkers.”) Then drawing a prim line in the sand, she goes on to say, “As important as these groups are to issuers, they are not at the heart of the SEC’s mission, which is to protect investors, facilitate capital formation, and foster fair, orderly, and efficient markets.”

Since Peirce notes in her introduction “I have learned much from these thoughtful comments as I contemplate the SEC’s role in ESG disclosures,” I’m kind of scratching my head on this given her complaint in Thesis 3. Maybe she did some selective reading. That would be perfectly understandable. I know an SEC Commissioner has a range of responsibilities on many important issues. A total of 5,782 comment letters were received. That is admittedly a lot to read….

Let’s run the numbers. Don’t want any Fact Fakes here! Just to show I have no hard feelings, I’ll give Letter A to the stakeholder count (I guess “those who care about science” can be called stakeholders) and evenly split Letter B. That gives us 54.2 percent for shareholders and 45.8 percent for stakeholders. This is a bigger margin than in the Presidential election. Which, by the way Commissioner, Biden won.


Yikes.  Again.

So who is Bob Eccles?  And why is he so angry at Hester Peirce?

Well, for starters, he’s an ass.  Obviously.

Beyond that, though, he’s one of the OG statists trying to manipulate capital markets for political purposes.  From his own Forbes bio:

Robert G. Eccles of Saïd Business School, University of Oxford is the author of a number of books on integrated reporting, sustainability and the role of business in society. Professor Eccles is also involved in a variety of initiatives to embed environmental, social, and governance (ESG) issues in real world decision making. One of these is the Sustainability Accounting Standards Board (SASB), of which he was the founding chairman.


Ah.  Got it.  The role of business in society.  SASB.  Etc.

The catch here is that Eccles clearly knows he’s full of it.  The only evidence he cites to prove that Peirce is wrong and that he, Gensler, and Herren Lee are right is the submission of comments on proposed reporting requirements to the SEC, which, inarguably, favors precisely the sort of large, professional, legal-department-having stakeholder organizations Peirce claims are the real customers here.  Eccles thinks he’s mocking Lee, even as he proves her point.

Real evidence of what “investors” do and do not want has been pretty scarce, if not totally non-existent.  But there is this, from Yahoo Finance earlier this month:

Only a third of U.S. adults are familiar with environmental, social, and governance (ESG) investment criteria while ESG funds reach all-time highs, according to a new Yahoo Finance-Harris Poll survey….

The survey, which involved 1,053 U.S. adults and was conducted between August 20 and 24, 2021, asked about attitudes toward ESG investing held by Americans of varying ages, demographics, regions, and income levels. 

Millennials were the most familiar with ESG investing (51% compared to 32% of all U.S. adults), followed by Gen Z (37%).


Only a third of all American adults know what ESG is, and this number is much lower among older adults.  This is an imperfect measure, obviously, but the segments of the American population most likely to have long-term, steady careers and most likely to have retirements plans, 401(k)s, IRAs, etc. have no idea what ESG is much less want their wealth invested in it.  Only those who are newest to the professional world and who are the furthest from retirement are terribly ESG-savvy/interested.

That’s interesting, at the very least.

In his rant about Commissioner Peirce, Bob Eccles writes:

[S]ome letters are more important than others. Among them were very supportive letters from three large asset managers (BlackRockState Street, and Vanguard) who collectively have nearly $20 trillion in assets under management. The same is true for the ones submitted by the country’s four largest pension funds (from CalPERSCalSTRSNew York State, and New York City) who together have around $1.2 trillion in AUM.


Again, Eccles doesn’t quite seem to grasp the implications of what he is saying.  The “massive passives” all demand ESG disclosures, and yet, as per Yahoo Finance, the people whose money they manage – and whose shareholder rights they USURP as a matter of practice – have no idea what’s happening or how their retirement savings is being manipulated for political ends.  That’s nuts.

The SEC was created specifically to protect the interests of investors.  This much is clear.  But what those interests are is as complicated a matter as who those investors are.  When Chairman Gensler says that he is looking out for “investors,” he’s not wrong.  He’s just using a very narrow, very specific definition of “investors,” one that favors the biggest players in the game over everyone else.

And to be clear, Professor Eccles, we know we’re playing solitaire.  But that won’t stop us from trying.

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