INSIGHTS

 

 

Is ESG a “hopeless muddle”? Listen to Jason Mitchell discuss with SEC Commissioner Hester Peirce, about free markets and free minds; climate and ESG disclosures; the implications of Loper Bright on the Chevron Doctrine and agency authority; and the merits of financial innovation in crypto versus ESG.

Recording date: 09 April 2024

Hester Peirce

Commissioner Hester Peirce was appointed by President Donald Trump to the U.S. Securities and Exchange Commission in 2018. Before joining the SEC, Commissioner Peirce conducted research on the regulation of financial markets at the Mercatus Center at George Mason University. She was a Senior Counsel on the U.S. Senate Committee on Banking, Housing, and Urban Affairs, where she advised Ranking Member Richard Shelby and other members of the Committee on securities issues. Commissioner Peirce served as counsel to SEC Commissioner Paul S. Atkins. She also worked as a Staff Attorney in the SEC’s Division of Investment Management.

 

Episode Transcript

Note: This transcription was generated using a combination of speech recognition software and human transcribers and may contain errors. As a part of this process, this transcript has also been edited for clarity.

Jason Mitchell

Welcome to the podcast, Commissioner Hester. It’s great to have you here and thank you for taking the time today.

Hester Peirce

Jason, it’s great to be with you. And I want to start with my standard disclaimer, which is that my views are my own views as a commissioner at the U.S. Securities and Exchange Commission and not necessarily those of the S.E.C. or my fellow commissioners.

Jason Mitchell

Got it. Thanks. Understand. Thank you for the clarification. So, Commissioner, I’d like to start out by talking about your philosophical approach to regulation and markets. In an interview with Coalition Greenwich in 2022, you remarked that, quote, Markets are good at figuring things out. They combine the knowledge of everyone in society. So if you allow markets to work as they do on their own, you end up with solutions to the problems that society faces, including climate change and concerns around human capital.

Jason Mitchell

All of those kinds of issues can get worked out better by a market that is allowed to direct capital to the best and highest use. And so with this free market view in mind, what is the role of a regulator in your mind? Where’s the balance between regulatory oversight and a faith in the efficiency of markets when that obviously protects against market failures and negative externalities?

Hester Peirce

Yeah, so certainly I am a regulator. So I do think that there’s a role for regulators to play, but I would describe my view not only as being a sort of free markets first, but also free minds first, because I think that unleashing the human mind to solve problems is the key thing that we as a society can do.

Hester Peirce

So thinking about how best to unleash the human mind to solve problems, some people will say, well, we should try to have the government for real people to come up with good solutions to problems. I think that that is the second best solution. The best solution when when we can allow it to work is to allow people to freely think about problems and figure out solutions to them, drawing upon other people, using incentive mechanisms to get people to to put their minds to work.

Hester Peirce

And so sometimes those market based approaches that really harness human ingenuity through the use of incentive based structures, sometimes they don’t get us to a place where we can solve the problem. And then we we come to regulators in ways we say, okay, let’s come up with a regulatory solution to this problem. But I really think the role of the regulator generally is to set broad parameters and then allow maximum human freedom within those broad parameters.

Jason Mitchell

Let’s talk a little bit about what’s changed over the last couple of years. In a CNBC interview back in 2019, you said that investors have always integrated ESG factors and you weren’t even sure if we need to try to define those things. So what do you make of the last five years of ESG developments since that interview? We’ve now characterized today’s version of ESG as political, not financial.

Jason Mitchell

Is this an issue or is this still an issue of see what you do and do what you say or have things changed?

Hester Peirce

I really think ultimately it comes down to that’s what you do and do what you say. It doesn’t really matter whether we’re talking about ESG or other issues. Our disclosure framework in the United States allows companies to tell their story to investors and directs people who want to manage other people’s money to explain to them what they’re planning to do with that money and how they’re planning to manage it.

Hester Peirce

And I think allowing that principles based approach means then that we really get an accurate view of how the company is thinking about managing itself. When you start to try to say, okay, well, these are specific issues that we’re going to pick out and we’re going to prescribe. The way you talk about these specific issues, I think what that ends up becoming is a backdoor way for the regulator to tell the company how to run itself or to tell the asset manager what it needs to be thinking about when it manages people’s money.

Jason Mitchell

But what do you do in this situation where investors and corporates don’t necessarily agree on what is material?

Hester Peirce

So I think that they’re always going to be disputes around materiality. It’s not you know, it’s not something that you can necessarily sit 100 people down in the room and they’ll all they’ll all say the same thing. But the concept is when we when we look at investors, we say the investors have lots of different things going on.

Hester Peirce

There are lots of different interests that they have. But the one interest we know they have in common is that they want the their investment to grow in value and financial value. And so let’s look at what actually has an effect of an effect on the long term financial value of the company. And that really is how I think you have to assess materiality.

Hester Peirce

Now, I think it’s been interesting to watch discussions around ESG because I think there was at first, you know, just people saying, well, this is important and so we should care about it. And then as people pushed back and said, well, you really have to have some sort of link to financial value, then people started to try to find that link and do it in pretty tenuous and I would say rough approximation.

Hester Peirce

And this is one of the the big issues that I have with ESG in general, right? We talk about ESG. It means one thing yesterday, another thing today, another thing tomorrow, and probably different things to different people. And so people want to take this view that if if I can show that at a company that thinks about ESG does better than a company that doesn’t, then I’ve then I’ve suddenly got an excuse to do anything that I stuff into the ESG box because I’ve shown that companies that care about ESG do better.

Hester Peirce

Well, it matters what was in that particular company’s ESG box. And so, you know, I think we don’t really do ourself any any favors by trying to think about all this stuff together. I think we need to think about these issues on their own as they apply in the particular facts and circumstance of a particular company. And then that brings us back to principles based disclosures.

Hester Peirce

Again, it’s just there’s there’s there’s not going to be uniformity because climate change may be very relevant to some companies, but completely irrelevant or almost irrelevant to other companies. And so we want the companies for which climate change is a pressing issue to talk about that. But we don’t want to force a company for which climate change is not a pressing issue to talk about that.

Hester Peirce

And I and I realize that some people who are listening to this may respond by saying, well, climate change is is a pressing issue for every company. But I think that really, if you sat down and talked to companies, you would find that it matters for some, but not for all.

Jason Mitchell

Your point about the lack of uniformity in the principles based approach, what does that mean for the question? Can formalized approach to ESG ever exist? One where investors simply try to identify best managed, best governed companies in an apolitical way?

Hester Peirce

Well, I think we’re seeing some efforts in certain industries for investors and people in the industry, companies in the industry to come together and say, hey, these are some metrics that we care about. Can we figure out a way to to measure these things? And that’s that’s fine. Those things are probably more flexible than having them built into government standards.

Hester Peirce

But I think really, as regulators, we should be pretty cautious about trying to mandate across all industries particular metrics that would fall in the bucket that most people think about is ESG.

Jason Mitchell

One of the criticisms of ESG in your recent speech, A Hitchhiker’s Guide to ESG, is its ambiguity because of the obvious difficulty in obtaining accurate comparable data. So I’ll take the counter kind of argument. If that’s the case, why not make it easier for investors to distinguish what’s actually material? I guess, you know, to that point, why is an ambiguity and I’d had differences in opinion between investors and corporates about what’s material.

Jason Mitchell

Why aren’t these arguments for greater standardized disclosure, not less.

Hester Peirce

Production of information and standardized standardization of information is not free. And so companies in Europe, for example, are spending a tremendous amount of time to try to collect data and force it into some sort of form that that can be disclosed. And so I think we have to think as a society, is this what we want our companies to spend their time doing?

Hester Peirce

It’s not a trivial cost. So I guess I would push back and say, I just don’t think that a lot of that effort is worth it. Again, if a company is managing itself based on something that someone might characterize as ESG factor, it ought to be telling people that it is managing itself according to that factor and how it’s measuring that thing, because that’s obviously going to be very relevant to understanding whether that company is going to succeed financially or not.

Jason Mitchell

We were talking a little bit earlier about sort of the shifting language of sustainable investors. The notion that you use a lot climate risk is financial risk is sort of turned into a bit of a refrain for ESG investors who’ve been pressed particularly of late to demonstrate materiality. At the same time, you’ve highlighted a super interesting, subtle nuance in language that effectively investors have shifted from using the term financially material to the term decision useful, which implies a lower standard of convenient rather than compulsory disclosure.

Jason Mitchell

I find this really fascinating. Just the semantics of this. I mean, do you think global definitions of materiality, obviously financial and double materiality ultimately are the irreconcilable level given the U.S. is interpretation is rooted in 90 years of legal precedent? And by the way, I’d add that I found it really interesting when I interviewed Commissioner Allison Herren Lee, that even she obviously one of the biggest proponents of ESG on the SEC, was herself skeptical about double materiality.

Jason Mitchell

She called it a false dichotomy.

Hester Peirce

Yeah, I mean, I do worry that there’s a divergence in where Europe is going and where the U.S. is going, because in the U.S., we have we do, as you say, have this tradition of thinking about materiality through the eyes of the company. And in terms of the company’s long term financial value, that the shift in Europe to say no, no, you also have to think about what the outward consequences are, is really not only a dramatic shift in disclosure policy, but it’s a dramatic shift in the way companies are thinking of themselves.

Hester Peirce

And I just don’t see that as as consistent with with the legal framework in the United States. You know, I may be overly optimistic in the eyes of some, but I really do think that a lot of the problems that people are so desperate to solve through mechanisms like double materiality are much better solved by by enabling managers at particular companies to focus on managing that company well.

Hester Peirce

And of course, that’s going to include thinking about relations with employees, what your relationship with your community is, which presumably means you can’t destroy the environment within which you operate. It’s thinking about these kinds of things is is natural to a company that is really focused on maximizing its financial value. I think you actually limit the ability of companies to contribute to solving some of these big problems by giving them too many different constituencies to answer to.

Jason Mitchell

The Supreme Court’s decision in Loper, Bright Enterprises versus Raimondo obviously ended the 40 year Chevron doctrine that essentially required courts to defer to an agency’s interpretation of ambiguous statutory language. How do you see this ruling impacting the climate litigation?

Hester Peirce

Yeah, I mean, I can’t really talk about the climate rule litigation because it is in litigation. But I think just stepping back, of course, every agency taking a look at Loper Bright and the other decisions that came down this term that that affect administrative law. But the FCC works on important issues. Its rules have always been the subject of scrutiny, sometimes scrutiny that happens in the courtroom.

Hester Peirce

And so we are always thinking about where does this rule fit within what the statute tells us we can do, what Congress told us we can do. That is what a good regulatory agency should be doing, thinking about statutory authority and whether we have it to do what we want to do. And so that’s kind of the perspective that I come to these things with.

Hester Peirce

We should be sticking within our statutory authority. The court’s new new approach to looking at that issue is important, of course, but we should be doing that anyway. We should be thinking about the statutory authority carefully anyway.

Jason Mitchell

Is there an argument to say that the end of the Chevron Doctrine combined, particularly with your concerns around ambiguity, they’re both an argument for more prescriptive congressional legislation?

Hester Peirce

Well, you know, that is this the the approach that some people have taken in the past when they’ve wanted us to do things that don’t, you know, that aren’t driven by material party, I’m thinking of something like conflict minerals or we have some mine safety disclosure rules. People have gone directly to Congress and said, Hey, I see that the FCC has this really effective framework for requiring public companies to make disclosures.

Hester Peirce

Could you throw in a few of these issues that we really care about that don’t have anything to do with financial materiality necessarily? So, yes, people can go to Congress and do that, and we will do what Congress tells us to do. But I would just say that one of the benefit fits of the U.S. framework has been that a lot of companies from within the United States and from all of all over the world have come here to raise money because they have felt that it is a place where, yes, they know they will be asked to make disclosures around their financial performance.

Hester Peirce

That is to be expected. And they know they’ll have to tell investors how they’re managing themselves. But they don’t expect to be drawn in by securities regulators into all manner of highly controversial topics. And I think this gets back to an earlier question that you asked. A lot of what is happening in the ESG space, I think is just a political debate.

Hester Peirce

And I would like that not to be forced on public companies. We’re already seeing that companies are less willing to go public than they used to be. And I think one of the reasons there are many reasons for that, but one of the reasons is that they’re worried about being forced to take positions on all manner of issues instead of just being able to put their noses to the grindstone and work on solving the particular problem or meeting the particular need for which the company was set up.

Jason Mitchell

How do you think about the parallels between ESG and crypto in terms of financial innovation? You’ve talked a lot about how unimaginative regulation is. It kind of crippled innovation in crypto specifically, and crypto seems to have really earned your sympathy and that an enormous amount of investor brainpower is spent trying to think about building products in in a way that avoids regulatory ambiguity.

Jason Mitchell

But can’t the same be said for innovations in sustainable finance? Or is the nature of financial innovation in ESG complicated by the fact that it’s politicized?

Hester Peirce

Yeah, I mean, I think there are really two different issues, because if you’re an asset manager and you want to put out an offer to investors, an ESG based product, you’re absolutely free to do that. You just have to tell people what it is and what your plans are for, how you’re going to manage according to that ESG strategy.

Hester Peirce

The crypto problem, I think, does illustrate a bigger problem at the SEC, which is we tend not to be really adept at using our executive authorities to allow people to try new things and it providing guidance about where something falls within our jurisdiction and where it doesn’t. And frankly, it sometimes at dealing with players were not used to dealing with.

Hester Peirce

So I guess that could be a place where perhaps I haven’t talked to them, but perhaps there’s some niche players in the ESG space who feel that they would like to get a more attentive ear at the FCC. I welcome any of those people to come talk to me. I’m always willing to talk to talk to people. You know, part of my free market philosophy is that I believe that people should be able to buy the products and services they want, even if they’re products and services that I might not myself want.

Hester Peirce

And so we haven’t always been at the forefront of innovation in the investment management space, for example. So that may be an area again where where, you know, people may feel we could be doing more. But I think by and large, with ESG products and services you can offer them, you just have to say what they’re doing.

Jason Mitchell

In March, you voted against the SEC’s climate disclosure rule for issuers. Within ten days of the vote, nine cases were filed challenging the rule. And in April, the FCC voluntarily stayed the rules implementation. First, can you give some context, if possible, around the SECS recent 25,000 word reef. It essentially attacks petitioners as having set up a straw man argument while defending the SEC’s authority to adopt the rules and and even the rules consistency with the First Amendment.

Jason Mitchell

Is there is there any way that you can kind of unpack that?

Hester Peirce

No, I really can’t, because it isn’t a matter that’s that’s being litigated currently. Again, I go back to what I said when we were adopting the rule, which was I think we have changed the way we think about materiality in that rulemaking. I think we have taken a set of issues and treated them differently than we treat other issues and that that is not my preferred approach to securities regulation.

Jason Mitchell

I mean, can you at least talk about when you expect an initial ruling from the Eighth Circuit Court of Appeals, or is this something that won’t be resolved until post-election?

Hester Peirce

It really is unclear. I mean, as you say, there’s the briefing process that’s going on now, and then there’ll be an oral argument. There are a lot of interesting parties, so I don’t know exactly how that oral argument plays out or when it plays out. And then the court is going to have to sort through all the written and oral materials and write a decision.

Hester Peirce

And it’s just I certainly can’t predict that timeline. I don’t know that anyone can.

Jason Mitchell

Is there any version of the rules that you would have voted for or did they represent? I think this is your term special interest disclosure regardless of form.

Hester Peirce

I mean, I got to look at the rules before me and make decisions. You know, sometimes you just you can’t prejudge. Right. I don’t know what someone could present to me and say, this is a climate rule and perhaps I would support it depending on on what it was. But I think that I always am going to go back to this touchstone, which is materiality is so important for us.

Hester Peirce

And when we deviate from that, I think it risks fundamentally undermining the structure of our securities laws which have been so effective for so long. I can’t support anything that I think would hit at that. At what undergirds are our securities laws.

Jason Mitchell

Kind of running parallel to this and something that you voted against when it was proposed is the enhanced ESG disclosure rule for advisors and funds. Many commenters encouraged the commission to adopt its climate disclosure rule for issuers prior to the adoption of a rule requiring advisors and funds to do the same. Basically, in my mind, kind of not putting the cart before the horse like the EU did with this FDR.

Jason Mitchell

But how does the pending litigation against the disclosure rule for issuers that we’ve just talked about, how does it impact your thinking with regard to this rule if and when it it’s adopted?

Hester Peirce

Yeah, I mean, that rule is still on the agenda, so I don’t know what will ultimately happen with it. I did hear the same kinds of comments that people said, we really need to have the public company rule in effect before a set of requirements on asset managers that turns on having information about public companies. Again, I had issues with with that rulemaking obviously will if we see it again, I’ll look at it on whatever the final rule looks like, but I think we have to be careful not to set up a regime that essentially says to someone, if you want to run an ESG fund, this is what you have to think about as

Hester Peirce

a manager of an ESG fund. Why not let people figure out for themselves people, meaning investors and asset managers, figure out for themselves what kind of funds they want, whether those are ESG or not ESG, and then just describe what they are and then let the market decide whether those are good products or bad products.

Jason Mitchell

If existing rules already provide room for climate disclosure, should the SEC’s division of corporation finance have more capabilities or at least be more empowered to take an active role if investors continue to demand more climate information?

Hester Peirce

Well, the Division of Corporation Finance already asks companies about lots of things, and we know that in the lead up to the climate rule, there were conversations with companies between the division and and companies about whether they had disclosed climate risks that they should. And companies sometimes pushed back and said, no, we thought about this and this is just not it’s it’s it isn’t material to us.

Hester Peirce

But those conversations happen every day along a whole set of issues and issues that some people might classify as ESG fall within those set of issues. I’m sure.

Jason Mitchell

Is there a reason and I’m not super familiar with the division, but is there a reason why we haven’t seen the division issue a risk alert, given that some companies disclose and others don’t?

Hester Peirce

Yeah, I mean, I would say that the 2010 guidance that the commission put out, it was not division level, but commission level has more force because it’s a commission level document that really was a response to to the commission thinking about the disclosures were out there that were out there and and telling companies, this is how we’re thinking about this issue and make sure that you’ve thought through these kinds of ways in which climate may affect your business.

Jason Mitchell

Last September, you voted in support of the amendments to the names Rule for investment company names, which broadly requires that funds have a policy to invest 80% or more of their assets in the covered terms in the fund. In your statement on the names rule pizza or pizza. You bring up some good concerns about the room practice. How do you think about the rule in an ESG context?

Jason Mitchell

Obviously, the commission noted that ESG terminology and fund names could potentially be misleading without definition.

Hester Peirce

Yeah, I mean, I think that rule is just a basic principle that if you have a fund, people are going to look at the name and they’re going to put some value in the name. Obviously, we want to encourage people to look beyond the name because you can’t know from just a name what is actually in the fund, and that’s against the title of the statement, Pizza or pizza, because I can have pizza and it’s a pepperoni pizza.

Hester Peirce

Or when I’m thinking of pizza, I might be thinking of a pepperoni pizza. Someone else might be thinking of a totally different kind of pizza. I just heard about a Pierogi pizza, which is essentially a pizza where they substitute mashed potatoes for the tomato sauce. I don’t think that’s what people traditionally think about when they think about pizza.

Hester Peirce

But if someone wanted to offer a fund that did something ESG related. Again, ESG means one thing to one set of people and another thing to another set of people. So tell people what it is that you’re planning to do. Stick to that plan. And then I think everyone is fine because investors can look at the fund name, then they can look at what the fund day means and then they can make their decision knowing that the fund will stick to what it said it was going to do.

Hester Peirce

And so that’s really why I supported that rule. And I think it has much broader implications than just ESG, but I think it’s a pretty basic principle.

Jason Mitchell

We’ve seen the problems the EU has had with SFR in its categorization structure. The SEC’s proposed rule also contains a categorization framework, which many have called unworkable, especially because of the proposals ambiguity. In what ways do you think this framework is is problematic?

Hester Peirce

Well, again, I think it sort of lapses into this tendency for regulators to try to is step in front of the market and step in front of investors. Why not just let investors and asset managers figure out whether the products and services the asset managers are offering meet the needs of the investors, trying to trying to put boxes around different types of offerings doesn’t really strike me as being particularly government function.

Hester Peirce

Now in some places like I think in in Europe, the goal is to try to drive capital to particular uses in a way from other particular uses. That is just not the function of the framework in the United States. We have a very agnostic view of where capital flows are. Our goal is to get information to investors so they can make decisions about where they want to invest their capital.

Hester Peirce

It’s not to tell them you should be investing it in this type of thing or not and that type of thing.

Jason Mitchell

You’re absolutely right about that. With regard to the EU, they’ve made no secret that they prioritize doing capital towards sustainable investments and away from unsustainable investments, which would be, I think, anathema to the US. In fact, the only time I recall that the US has tried to steer capital towards any kind of area was towards small to medium businesses during COVID.

Hester Peirce

Yeah, I mean, I think we I mean, there were certainly government programs along those lines in terms of the SCC, Congress has told us in certain instances that we have to take particular note of how rules will affect smaller businesses. And certainly that’s, you know, figuring out the conundrum of getting capital into the hands of people who need it most is always going to be something that we have to think about.

Hester Peirce

And I do think that that, you know, going back to the first question you asked about, you know, this idea of getting everyone in the economy involved in solving problems, one of the things that I worry about is that the person who has the solution to, you know, whether it’s it’s figuring out how to produce energy more cleanly or how to, you know, clean water or recycle better or whatever it might be, that the person who has that idea is is laboring away somewhere outside of Silicon Valley and just needs some capital to get that project off the ground and can’t get the can’t get the visibility with the people who have the money.

Hester Peirce

And so that is certainly something I’m always thinking about as a regulator. What can I do to make sure that that that person can tap into the capital markets and won’t be turned away because she’s not, you know, a big company with lots of connections to wealthy people?

Jason Mitchell

I guess just one last point around the categorization structure, because it sounds like you’ve got a pretty big foundational issue with this. But if the commission moves forward with finalizing this rule, is there a framework that would work or one that you would support? Is there sort of a pragmatic workaround?

Hester Peirce

I mean, I just think again, I’d have to see what is put before me to decide whether I could support it or not. But I think we really accomplished a lot of what we’re trying to accomplish with the Names rule. That was a rule that had been in place for some time, but we felt needed tightening up. And, you know, there are some quite controversial and difficult aspects of that rule.

Hester Peirce

Parts that gave me pause, didn’t know that I would ultimately be able to support the rule. But I think, again, because it’s such a fundamental thing, is yet to tell investors what your fund is trying to do and then just do it. And I think that’s really what that ESG for Advisors and Funds Rule is trying to get at.

Hester Peirce

And I just don’t know that we need to create a whole set of new labels in order to achieve that goal of just getting people to do what they say and say what they do.

Jason Mitchell

We’ve talked a lot about disclosures, categorization and most recently names, but I guess in the context of all that, how successful is current regulation in protecting against greenwashing and how do you think about the role of enforcement in the context of greenwashing? There seems to be, in my mind, two very, very different enforcement models. The EU has driven ESG regulation and legislation, but appears to be much slower to enforce.

Jason Mitchell

While the SEC has been much quicker to enforce under traditional mis selling rules, but slower obviously to to regulate, does that effectively create an enforcement burden for the SEC in cases like DWC, where the SEC was much quicker to action versus the German regulator?

Hester Peirce

Well, again, without speaking of a particular case, I think that the way we we do things is we we say, you know, to companies and to asset managers, you have to tell people, you have to tell investors what you’re doing. And if you tell them that you’re doing something and you’re not actually doing it, that’s a problem. And that depending on how big the deviation is, that could end up with you facing an enforcement action.

Hester Peirce

I think if you’re going to have a rule book, you should enforce the rulebook. And that’s why I leery about adding new rules to the rulebook because I know that will we need to we need to back those up. So we ought to be cautious and careful when we’re designing the rules that go in the rulebook, and then we ought to enforce them once they’re in the rulebook.

Hester Peirce

And so that’s just a natural feature of what the SEC does, whether it’s about greenwashing or the latest thing is a washing. Or at the time when I first started here at the SEC, everyone wanted to label everything crypto, and sometimes they were not doing anything crypto related or during COVID, everyone wanted to say that they were working on the cure to COVID or, you know, they they come up with some new diagnostic for COVID or whatever it might be.

Hester Peirce

And if it’s not true, then you’re going to face an enforcement action. If you’re if you’re lying to people about what you’re doing, you’re going to face an enforcement action. I don’t think greenwashing really is any different than any of these other things where people are not telling what they’re actually doing.

Jason Mitchell

You’ve talked about the value of resilience and originality as kind of an argument against standardized global reporting frameworks like the ISIS. Be in your words, if we all get it wrong, we all go down together. Well, but why doesn’t some kind of baseline make sense? It’s a bit of an analogy. Different countries drive on different sides of the road, but that doesn’t mean there aren’t universal norms governing speed limits and stop signs.

Hester Peirce

Yeah, I mean this is really does go to for me major concern around the ESG disclosure initiatives which in the standardization initiatives which I think are becoming much more about telling companies how to think about problems than actually trying to elicit from companies what they would organically be doing. And so I don’t know how you how you get to a place where you’re where you’ve got universal standards on hundreds of different data points where you don’t lose the dynamism that I think makes our our market economies so effective at solving problems.

Hester Peirce

I understand that people want to be able to compare across companies, but I think the much more important issue is making sure that when a company sits down to think about how it wants to address a problem, it is free to address that problem in the way it thinks. Actually is most likely to solve the problem instead of in the way that fits nicely within the boxes that the regulators have spelled out about what counts as a sustainable area and what in what therefore will draw investment dollars.

Hester Peirce

I think this is really a fundamental concern, and I think it’s one that people who are who are big advocates of standardization need to think very carefully about. It’s going to not play out in the short term as much, but it will play out in the long term. You know, you hear about people who engineer their businesses so that so that they fit within whatever those disclosure standards are.

Hester Peirce

And it’s just a waste of everyone’s time and energy for people to be thinking more about regulation than actually about sitting down and solving real problems.

Jason Mitchell

Yeah, I mean, I guess I also think about in this respect, the SEC has traditionally been a regulatory leader where other regulatory bodies then adopt comparable or at least consistent rules. So what’s the ASX’s role in global regulatory convergence in the East China climate space, Or is there a kind of, I guess, American exceptionalism that plays out kind of like the difference between Gap and AI for us?

Hester Peirce

Yeah, well, you know, I am a believer that America has a very important role to play here, but I think the role is one of saying, let’s not try to pretend that this is financial reporting. I mean, yes, we have gap in IFRS, but we’re able to reconcile. The two people have figured out how to do that. There have been areas where the standards have converged.

Hester Peirce

But when you’re talking about issues around and again, I don’t like to use the term ESG because it’s so ambiguous and broad, but this whole range of issues that’s now being labeled ESG just does not lend itself to standard standardization the way financial reporting does. And I think the U.S. can play an important role here by showing the world that we can avoid that prescriptive, disclosure based standardization around these issues.

Hester Peirce

And we can also be the leaders in solving the problems that are causing people to design these prescriptive standardization frameworks. And so that’s what I want people to see. I want them to see that the U.S. is a place where the the markets are so dynamic. We’re drawing talent from all over the world and we are spending our time thinking about solving these really big problems that people are so worried about.

Hester Peirce

And I hope that’s what causes other people to say, hey, maybe we too ought to back off a little bit of the focus on trying to do everything through the regulatory disclosure mechanism and allow people’s minds to run free and and and and think about real solutions to these problems, not within this very constructive regulatory disclosure framework.

Jason Mitchell

Final question. The Republican presumptive nominee has done effectively a 180 degree turn and emerged as a pretty big proponent of crypto in this electoral cycle. Given your S.E.C. and legal credentials, which are incredibly strong and longstanding support for crypto, I think many would suspect you potentially as a strong contender for SEC chair. So to the degree that you can sort of at least kind of shape the contours of this, how do you think about reorienting the SEC’s rulemaking priorities in particularly the ESG and climate space?

Jason Mitchell

If the chair rotates under a new party?

Hester Peirce

Again, I don’t think it it so much matters who the chair is. This is really an institutional issue and it’s a question of whether the SEC as an institution is hewing to the the role that Congress gave it and the role of the FCC is to allow companies and allow asset managers to communicate with investors the information that those investors need to think about the the you know, their financial the financial value of those asset management products and services or the long term financial value of those companies.

Hester Peirce

That’s our role. If we stick to that role and if we work on building marketplaces, the rules for marketplaces, so that information can be reflected in prices, then we’ve done our job and and is not ultimately political job, right? It’s a job about making capital markets work so that we can solve the problems in our society, so that we can meet the needs in our society.

Hester Peirce

And that’s something that no matter what side of the political spectrum or where on the political spectrum you are, you can you can agree that it’s good to have capital markets that function well at getting capital to the people who can use it best. And that’s what I’m concerned about. No matter who’s sitting in that FCC chair.

Jason Mitchell

It got a good way to end. So it’s been fascinating to discuss your perspective on climate and ESG disclosures, the implications of super bright on the Chevron Doctrine and Agency Authority and the merits of financial innovation and crypto versus ESG. So I’d really like to thank you for your time and insights today. I’m Jason Mitchell, head of Responsible Investment Research at Mann Group here today with SCC.

Jason Mitchell

Commissioner Hester Purse, many thanks for joining us on a sustainable future and I hope you’ll join us on our next podcast episode. Commissioner Pearse, thank you so much for this.

Hester Peirce

Thank you so much, Jason. It’s been a delight.

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