Climate Change Bill Passed by House Committee

That said, the House Financial Services subcommittee on Investor Protection, Entrepreneurship and Capital Markets met with experts from various parts of the financial industry to obtain information to further discuss drafts of five legislative proposals, including the Climate Risk Disclosure Act of 2019:

• ESG Disclosure Simplification Act of 2019, which would have companies provide additional disclosure and have the Securities and Exchange Commission establish a separate Sustainable Finance Advisory Committee.
• Shareholder Protection Act of 2019, which mainly would require public companies to submit quarterly reports to both the SEC and investors detailing the amount, date, and nature of the company's expenditures for political activities.
• Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act of 2019 that requires issuers to disclose human rights risks and impacts.
• A bill for all public companies to disclose all corporate taxes paid.

Chairwoman Carolyn Maloney, D-N.Y., noted in her introductory remarks that ESG was one of the "most important topics in the financial markets right now." She added that over 2,300 companies that invest more than $80 trillion have committed to the UN Principles for Responsible Investment.

She pushed for the Securities and Exchange Commission to develop ESG disclosure standards that would apply to all public companies, adding that those who say the SEC shouldn't mandate ESG data because it isn't material were wrong. "The SEC mandates disclosure for lots of information that is not tied to the concept of materiality," she said.

Some GOP representatives were not convinced of the necessity of ESG disclosure, such as Bill Huizenga, R-Mich., who claimed in his opening remarks that if ESG investing does help performance, then those "best practices will bubble to the top." He said ESG disclosures should not be mandated because they only "name and shame" companies, pulling from a recent speech by SEC Commissioner Hester Peirce.

(Related: SEC Commissioner's Speech Rankles ESG Industry)

Finally he noted, in a theme that would be used on the GOP side of the aisle throughout the hearing, that the proposed rules would add costs to having a company go public, and would put downward pressure on the "plunging" number of initial public offerings, and they as "lawmakers should help to promote capital formation."

For perspective, the number of IPOs listed in 2018, from data by Statista, was 190, which has grown over last couple of years. The number of IPOs over the last 20 years was 2,209, with an average of 110 per year. The highest level of IPOs during that time was 486 in 1999, just before the tech bubble burst. The lowest number was 31 in 2008, during the financial crisis.

Rep. Casten input that the SEC wasn't there for companies to "hide information" and that "competitive markets depend on transparency no matter how much we as business owners don't want to provide that information."

ESG information should be "readily available and standardized," said Rep. Juan Vargas, D-Calif., adding that "it's becoming clearer that climate change is real, it's not a Chinese hoax, it's something that is impacting all of our communities."

Maloney asked one witness — CalPERS' James Andrus, investment manager, financial markets sustainable investment — if ESG disclosure is material to investment. Andrus said yes, although there's been a lot of mention about it without a full discussion as to what it is. "There's not one definition of materiality," Andrus said.

— Related on ThinkAdvisor:

• MSCI Adds ESG Ratings to 32,000 Funds and ETFs
• ESG Data Is Missing Link