SEC Commissioner Calls Out Problems With Quantifying ESG Factors

SEC Commissioner Hester M. Peirce expressed concern regarding the accuracy of experts and criteria for assessing a company's environmental, social and governance ("ESG") factors.

In a speech before the American Enterprise Institute, Ms. Peirce warned that corporations may be awarded unfairly low ESG scores based on current practices. Other than governance, which according to Ms. Peirce "at least offers some concrete markers," environmental and social categories are less easily quantified. Additionally, ESG ratings are based not on standard criteria across the markets, but instead on a "shifting set of trendy issues of the day." Furthermore, Ms. Peirce noted that the ambiguity around ESG is facilitating the growth of self-identified ESG experts, who operate with little oversight.