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Trillium Responds to SEC’s Request for Input on Climate Change and ESG

What a difference a few months and a new administration make!  Early in the Biden administration, the Securities Exchange Commission (SEC), the main regulator of securities market participants, set out to re-evaluate its regulation of corporate climate change disclosure. This welcome re-examination comes as governments globally are rolling out their own climate change disclosure frameworks, such as the European Union’s suite of regulations including the Sustainable Finance Disclosure Regulation, Non-Financial Reporting Directive, and Taxonomy for Sustainable Activities.

In March, the SEC asked for input on a wide variety of climate change disclosure questions, as well as the broader framework of environmental, social and governance (ESG) disclosure. As long-time ESG investors, Trillium welcomes this chance to engage with regulators.  Our full response can be found https://www.sec.gov/comments/climate-disclosure/cll12-8901048-242137.pdf. We emphasize the need for mandatory ESG and climate disclosures, with specific recommendations for the characteristics of such a disclosure framework.

Since our founding, Trillium has believed in the importance of incorporating environmental, social, and governance (ESG) information into our investment decision–making framework.  ESG disclosure gives us insight into how management teams are assessing, approaching and managing a complex set of risks and opportunities, but existing voluntary disclosures are not sufficient.  Mandatory ESG disclosure will allow us to assess companies across a standardized framework and will encourage companies to proactively evaluate and manage ESG risks and opportunities.  At the same time, investors globally are increasingly relying on ESG information in decision-making, and U.S. companies that fail to provide this disclosure will be at a disadvantage in the global competition for investors’ capital.  

Climate change risks drive economic instability, with serious, disruptive impacts on asset valuations and global financial markets.  While we acknowledge the deep importance of climate change to the global financial system, we have found that many of the topics covered under the ESG umbrella are intersectional and cannot be pulled part.  For example, how can we consider climate change in our investment decisions without considering the human rights of those most deeply affected?  While some communities will be dealing with rising temperatures, others will be faced with rising sea levels or changing rain patterns.  Other communities, and often the same ones, are bearing a disproportionate burden of pollution from industrial facilities’ contributions to the changing climate.  And all too often, many of these are communities of color, with environmental racism exacerbating the deep structural inequality in not only in the U.S., but also globally.  

We therefore believe a broad and encompassing approach to ESG disclosure and management should include a variety of issues relating to companies’ relationships with employees, stakeholders, and the environment, and should reflect the dynamism with which issues come to the forefront of investor concern.  The SEC has already noted the importance of all investors having equal access to critical, material financial information.  We believe that ESG information should similarly be required on an equitable, comparable, and reliable basis.