ESG Disclosure Simplification Act of 2021
Floor Speech
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Mr. HILL. Mr. Speaker, I thank Ranking Member Huizenga for the time on the floor today.
Mr. Speaker, I would say to my friends on the other side of the aisle: We are not debating climate change here. We are debating the proper way to financially disclose risks on financial statements of companies that may or may not experience impact from climate change.
No one is over here denying about climate. We are here talking about what the right way is to do this. And H.R. 1187 is not the right way to do climate disclosure on behalf of taxpayers, shareholders, and employees of public companies.
I have spent the better part of four decades in leadership in both public and private companies, and I have been engaged throughout those years in calling for quality corporate governance practices. I can say with absolute authority that mandating these disclosures as outlined in H.R. 1187 is not only not necessary but would be expensive and lead to increased litigation costs.
As my colleagues have already said, the information is already to be disclosed if it meets the materiality standard. The idea of materiality has been refined over many decades, and it is what makes our capital markets the envy of the world.
As Justice Marshall stated in the Supreme Court opinion from 1976: ``Some information is of such dubious significance that insistence on its disclosure may accomplish more harm than good. . . . If the standard of materiality is unnecessarily low . . . management's fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information, a result that is hardly conducive to informed decisionmaking.''
We articulated this in a letter to the SEC that my colleagues and I sent regarding their plans for financial disclosure. In that letter, signed by 22 of my Republican colleagues in the House, we outline our concerns about the SEC going far afield of its statutory mission to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.
We also warn that the nature and scope of climate change disclosure rightfully depends on a particular company's business line and their carbon footprint. One-size-fits-all, uniform mandates would be deeply misguided for an issue as complex as the impact of the climate over many, many years on individual businesses.
This rings more true here in Congress. Congress does not know what is best for a public company. These decisions are best left up to the board that already has a fiduciary obligation to its shareholders to manage this kind of issue.
Our publicly traded companies are responsive to shareholder engagement. Over the last two decades, they have dramatically improved their governance practices by increasing diverse, independent directors and increasing their boards' attention to the business judgment rule and fiduciary duty of care.
Look at Procter & Gamble as just one U.S. iconic company. In 2000, their annual proxy statement was 56 pages. Today, it is 111 pages.
Like the vast majority of public companies in the S&P 500, P&G has significant disclosures of ESG initiatives, their political contributions, and their sales around the world.
Let's not make it more difficult for public companies. As policymakers, we should be promoting policies that bolster investment options for Americans, not limit them. This bill limits that.
Mr. Speaker, I encourage my colleagues to vote against the legislation.
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Mr. HILL. Mr. Speaker, as I noted in our debate earlier today, I stand in opposition to the legislation en bloc offered by the majority, and that is why I am offering an amendment that replaces the entire underlying bill with a study to be conducted by the Securities and Exchange Commission.
The amendment would require the SEC to summarize and describe any inconsistencies in the methodologies related to environmental, social, and governance metrics before--repeat, before--they mandate any type of disclosure from public companies.
My amendment will provide us with much-needed information on the differences between the five or six standard setters, among many others, currently in the market. They all have different approaches and ways to measure climate and other ESG risks. This causes confusion, Mr. Speaker, and turmoil, both for the public companies trying to determine these metrics and issue their financials and for investors trying to understand what has been disclosed.
As we have discussed during the general debate, H.R. 1187 is a compilation of five different bills. During this amendment debate, I want to focus particularly on the bills offered by the gentleman from California (Mr. Vargas) and the gentleman from Illinois (Mr. Casten).
When we marked these bills up in the Financial Services Committee, I pointed out that even though Democrats believe these bills are in alignment, as they both address the need for climate-related disclosure, they are in tension with one another.
For example, Congressman Vargas' bill suggests that a disclosure system is sufficient by providing an annual report describing the long- term ESG strategy and ESG-related metrics, which presumably would include climate risk.
On the other hand, Congressman Casten says that a disclosure should report the same metrics, but additionally needs to disclose the social and human impact of a company's actions, analyze how the company's reputation might be affected by climate, detail the board's oversight, and has a long list of statutory additions.
The Democrats often say that we need to mandate measuring climate risk because this is science. But Deloitte & Touche reported that science has not agreed on the methodology for measuring climate risks, and even when companies try to measure these risks, the information isn't measured consistently, timely, and in a relevant way, increasing uncertainty.
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Mr. HILL. Mr. Speaker, we are not in Kansas anymore, since we are using ``Wizard of Oz'' analogies. To put a finer point on it, we are not debating climate. We are debating the right way to disclose financial risk for climate, from climate.
To put a finer point on it, a report released by the Governance & Accountability Institute features a breakdown of all the Standard & Poor's 500 publicly traded companies that are currently disclosing climate risk and which standard setter they are using.
The outcome shows that 51 percent use one company, 14 percent use another, and 5 percent use another. Vastly different outcomes. And, in fact, the bill proposed by the majority dictates which one of those should be used, and it happens to be the one that only 5 percent of companies are currently using.
So there are five or six of these different standard setters out there, and it is important for the commission to figure out which one of these makes the most sense before we mandate in a rulemaking.
Bogging down these companies with additional, unclear, unwieldy disclosures just to prove a political point is not just unfair, it is expensive. It leads to increased litigation risk and hurts long-term capital formation. This is not how we should be operating as policymakers and precisely why I am offering this amendment to get the work done right up front before it turns into another government mandate.
My amendment is simply good governance. It will replace the bill with a study of all disclosure frameworks related to the environment, social and governance metrics, as well as those particularly related to climate that any public company may use when making disclosures to our investors, whether voluntarily or pursuant to a statute. And it would analyze the differences and conflicting factors between the reporting frameworks. This information is what we need in Congress, and we should be able to review it before drafting, let alone voting on legislation that will lead to a mandated new disclosure framework.
Mr. Speaker, my amendment is simply good governance that will replace the bill with a study, and I believe that is the right way to go. I urge my colleagues to support this.
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Mr. HILL. Mr. Speaker, on that I demand the yeas and nays.
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