Last week Morgan Stanley Capital International (MSCI) announced it is acquiring RiskMetrics (who themselves acquired KLD, Innovest and Institutional Shareholder Services in the past three years). Is this a sign that ESG  is going mainstream? Another clue might be the agenda of last week’s SEC Investor Advisory Committee (IAC) meeting, which included such items as an “ESG Disclosure Work Plan” and “Proxy Voting Transparency”. Author Bill Baue asks: what does it mean?

The existence of the IAC is a good indication that ESG regulation may be under way. It attests to the ‘G’ aspect of ESG. The IAC acts as a sounding board, giving guidance to the SEC on their regulatory agenda. Though the SEC doesn’t have to act on anything the IAC recommends, its existence is still a vehicle of expression for the public voice – meaning the SEC would need a good reason to ignore the recommendations of the IAC, according to Baue.

Adam Kanzer of Domini Social Investments and Stephen Davis of Yale’s Millstein Center for Corporate Governance (and chair of Investor as Owner Subcommittee), outlined the Work Plan according to Peter DeSimone of the Social Investment Forum, for the next 6 months or so: the subcommittee will look at the benefits of ESG disclosure to investors, accounting standards in the U.S., the CDP and the GRI, and will plan to hold a public hearing on ESG disclosure that will coincide with another full SEC meeting.

Last month the SEC Staff Interpretation released the “Commission Guidance Regarding Disclosure Related to Climate Change”, setting precedent on the ‘E’ aspect of ESG. This release prompted House Financial Services Committee Ranking Member Spencer Bachus to write a stern letter to SEC Chairman Mary Schapiro, ‘voicing serious concerns’ that the release is ‘promoting a political agenda through regulation’. But Bachus’ letter also raises eyerbrows, with some thinking he is promoting his own political agenda through obstruction.

This back and forth may be futile, as the corporate community generally understands that climate change regulation is necessary, according to Baue. However, maintaining momentum on ESG regulation and corporate democratization may need more enthusiasm on the ground to really show support for these movements.

It’s important for businesses to take this type of regulation seriously, especially if they’ve yet to do any type of non-financial reporting or are just getting started. Not only that, but investors all across the country have become increasingly hip to sustainability issues and how they affect companies – which in turn affects how they invest (or don’t) in companies. It would be wise for companies to step up to the plate on this issue, not only to be leaders in their sectors but to lead by example in the hopes that everyone else will follow suit.

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