To Lead or Not to Lead: Contrasting Recent Statements by SEC and ESMA Chairs on ESG Disclosure

Donna Mussio is corporate special counsel, Mary Beth Houlihan is corporate special counsel resident, and Taylor Souter is a special counsel at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on their Fried Frank memorandum.

The topic of environmental, social and governance (“ESG”) or sustainability disclosure has attracted considerable attention from investors, reporting companies and regulators in recent years. Recent statements by the Chairs of the Securities and Exchange Commission (“SEC”) and the European Securities and Markets Authority (“ESMA”) reflect the starkly different views by securities regulators in the United States and Europe on the current role of market regulators in promoting such ESG disclosure.

In the United States, where the SEC adheres to a principles-based disclosure regime based on materiality, there are few line-item or explicit mandatory ESG disclosure requirements. Instead, ESG disclosure is typically made pursuant to voluntary frameworks in corporate sustainability reports, websites or other channels outside of reports filed under the Securities Exchange Act of 1934.

By contrast, since the 2014 Non-Financial Reporting Directive (the “NFRD”), [1] the European Union and the United Kingdom have mandated environmental and social disclosure by certain large companies and continue to propose and enact regulatory requirements aimed at increasing and standardizing ESG disclosure in periodic reporting and offering documents published in the European Union and the United Kingdom.

The SEC Approach: Wait and See

To date, the SEC has largely declined to mandate line-item ESG disclosure and has instead confirmed support of a principles-based disclosure regime based on materiality. In proposed Management’s Discussion and Analysis (“MD&A”) amendments published by the SEC on January 30, 2020, the SEC makes no mention of ESG disclosure. [2] In a concurrent statement to the proposed MD&A amendments, [3] SEC Chairman Jay Clayton explicitly acknowledged the absence of new environmental and climate-related disclosure guidance in the proposed amendments and indicated that he is satisfied with the SEC’s current approach to such disclosure, particularly with respect to its commitment to materiality-based disclosure. Chairman Clayton’s statement emphasizes that environmental and climate-related matters are complex, forward-looking and uncertain, likely involve estimates and assumptions, and are difficult to verify, describing these as “threshold issues.” His statement cautions that environmental and climate-related disclosure involves matters for which securities regulators should be careful to stay within the boundaries of their regulatory mandates. Although such matters are multi-jurisdictional, the statement stresses that any efforts to coordinate disclosure mandates across jurisdictions must take into account the SEC’s investment-oriented disclosure regime with public and private liability enforcement, which sets it apart from other jurisdictions outside of the United States. In other words, “experience demonstrates that facially analogous disclosure mandates should not be expected to equate to uniform effects across jurisdictions.”

Chairman Clayton’s statement notes that the SEC has been engaged with investors and market participants regarding environmental and climate-related disclosure and that the SEC has participated in related work streams with its international counterparts and authorities, including its work with the Task Force on Climate-Related Financial Disclosure (“TCFD”) through the Financial Stability Board, its participation as a member of the IOSCO’s Sustainable Finance Network Steering Group, and its bilateral discussions with the Bank of England, the UK Financial Conduct Authority, ESMA, representatives of the European Union and other financial regulators. The Chairman encouraged continued engagement on this issue by market participants, particularly with respect to addressing the threshold issues and helping the SEC to better understand how issuers and investors use ESG information to make decisions. Although the statement leaves open the possibility of further action by the SEC, the tenor of the statement, along with the fact that the proposed MD&A amendments were silent on ESG disclosure, means that, for now, the SEC appears to be satisfied with the status quo and taking a wait-and-see approach regarding the need for mandatory ESG disclosure.

EMSA: Show Global Leadership

In a speech on February 12, 2020 before the European Financial Forum 2020, Steven Maijoor, the Chair of ESMA, emphasized that environmental and climate change risks are a key source of potential financial instability, which is a high priority for securities regulators. He stressed that securities regulators have “a clear mandate to prevent threats to financial stability and ensure investor protection” regarding the risks posed by climate change. Noting that the private sector has been at the forefront of development of standards for ESG factors, Chair Maijoor indicated that it is time for the public sector to step in to promote reliable, relevant and comparable ESG information and to increase the credibility of the standards. He stressed that there should be consolidation of the multiple ESG frameworks and standards into a single set of standards and that Europe should “show leadership in this area” and play a leading role in promoting this consolidation at the international level. According to Chair Maijoor, “[i]t would not only be short-sighted but also detrimental for investors—who typically operate in global financial markets—to build a set of corporate ESG disclosure standards that is only regional.”

In addition to promoting a uniform standard for ESG disclosure, Chair Maijoor indicated that other steps should be taken to prevent “greenwashing” in ESG disclosure, including (i) developing a European standard—set by public authorities—for green bonds in order to avoid mis-selling and mis-labelling practices and (ii) regulation of ESG ratings agencies used for investment purposes in order to increase the transparency of the methodologies underpinning those scoring mechanisms.

Chair Maijoor’s statement is consistent with the enhanced mandate to incorporate sustainability considerations in ESMA’s recent Strategy on Sustainable Finance. [4] It is also consistent with ESMA’s advice to the European Commission regarding measures to counter short-termism, published last December, which recommended amendments to strengthen the NFRD “as an intermediate step until a more complete standardisation can be achieved through the establishment of a unified set of international ESG disclosure standards that is consistent with the global nature of financial markets and sustainability challenges.” These policy statements have driven legislative and regulatory initiatives in the member states of the European Union and the United Kingdom aimed at robust and consistent ESG disclosure at the country level, including France’s Article 173-VI of Law on Energy Transition for Green Growth, the UK Financial Conduct Authority’s climate change and green finance proposals (FS19/6), and the German Federal Financial Supervisory Authority’s guidance notice on dealing with sustainability risks. [5]


The European Union and the United Kingdom are widely seen as being at a later stage of development than the United States in terms of promoting and regulating ESG disclosure. As reflected in the statements by the Chairs of EMSA and the SEC, European regulators intend to continue to be a global leader in ESG and to promote consolidation of various country-level and private sector ESG frameworks into a mandatory international framework, while the SEC continues to take a wait-and-see, principles-based approach.


1Directive 2014/95/EU (requiring large public-interest companies with more than 500 employees to publish reports on the policies they apply with respect to environmental protection, social responsibility and the treatment of employees, respect for human rights, anti-corruption and bribery matters). The requirements of the NFRD became effective for financial years starting during calendar year 2017.(go back)

2Commission Guidance on Management’s Discussion and Analysis of Financial Condition and Results of Operations, Release Nos. 33-10751, 34-88094, FR-87 (January 30, 2020).(go back)

3Statement of Chairman Jay Clayton on Proposed Amendments to Modernize and Enhance Financial Disclosures; Other Ongoing Disclosure Modernization Initiatives; Impact of the Coronavirus; Environmental and Climate-Related Disclosure (Jan. 30, 2020).(go back)

4 back)

5 back)

Both comments and trackbacks are currently closed.