Securities and Exchange Commission Chair Jay Clayton gave opening remarks in connection with the Investor Advisory Committee meeting.
The Committee’s meeting agenda includes a discussion of whether and how investors use environmental, social and governance (ESG) data in connection with deciding on investments. Institutional investors have been increasingly vocal regarding their interest in ESG matters and in particular in receiving additional disclosures from public companies regarding their ESG policies, oversight of ESG matters at the board of directors level, and related issues. Similarly, proxy advisory firms also have announced voting guidelines relating to ESG matters. Chair Clayton highlighted his interest in understanding the data that companies use to make decisions and what data do investors use to make investment decisions. Chair Clayton noted that, with respect to ESG matters, not all companies in the same sector use the same or comparable data in their decision making and investor analysis also varies widely. Consistent with prior comments, as well as with comments made by other Commissioners, Chair Clayton noted that the disclosure framework has focused on principles-based requirements that are based on eliciting information that is material to investors.
The Chair also noted his interest in the Committee’s views regarding the second agenda item, which is a discussion of the concept release on harmonization of securities offering exemptions.
Finally, the Chair offered suggestions of topics and areas of focus for the Committee, which we reprint below, as they provide some insight on Commission priorities:
- “Self-directed individual retirement accounts (IRAs): Do retail investors in self-directed IRAs have sufficient protections, and is there anything further the Commission should do to help these investors?
- Teachers and military service members: What else can and should the Commission do to protect America’s teachers and military service members when they invest in the securities market?
- Minority and non-English speaking communities: Are there any regulatory barriers or hurdles that may be discouraging access to investment services for minority and non-English speaking communities, or leading to higher prices or inferior financial product choices? What can the Commission do to address this topic from a regulatory or investor education point of view?
- Retail access to investment opportunities: How can we help ensure that retail investors have access to the same attractive investment opportunities available to institutional investors in our private markets, while still providing appropriate investor protections? Are there changes in our regulation of funds that we should consider, including regulatory changes that would focus on the alignment of retail investor interests and expectations with the interests of fund managers?
- Retail investor protections in an increasingly global world: What are the differences in protections afforded to retail investors in U.S. and non-U.S. jurisdictions, respectively, and do retail investors understand these differences?
- Take one of our topics today—ESG. What assurances do retail investors have in the U.S. and outside the U.S. that a company that claims to meet certain ESG standards actually does so? I have serious concerns that retail investors do not appreciate the lack of protections in this regard when investing in companies outside the U.S., and I continue to be concerned that it is not adequately discussed.
- On the topic of audit quality, I also have concerns that retail investors do not appreciate the regulatory challenges of investing in registrants whose auditor is based in certain jurisdictions. Even in cases where the auditor signing the audit opinion is based in the United States, investors may not be focused on the fact that significant portions of the audit may have been done by affiliate firms in other jurisdictions. What more can we do to ensure that investors are cognizant of the current regulatory challenges?
- LIBOR transition: The pending LIBOR transition presents risks that market participants, working with central banks and regulatory authorities, need to address. What can the Commission do to help market participants address these risks and avoid the substantial frictions, including frictions that will harm investors directly (including retail investors), through higher costs, and as a result of uncertainty more generally?
- Index construction: Do retail investors and those who advise them understand how indices are constructed from (1) a technical perspective (e.g., weightings, adjustments and the like), (2) from a market exposure perspective (e.g., opportunities and risks the index incorporates), and (3) as a subset of those opportunities and risks, any key value judgments the index provider has made (e.g., to include or exclude certain types of companies)? What can we do to ensure that investors understand these topics? Should we encourage or require more disclosure?
- Credit rating agencies: How much do retail investors rely on credit rating agencies and how much influence do they have in today’s marketplace? Are they appropriately disclosing, monitoring and managing their conflicts? Are investors actually harmed by the compensation models of credit rating agencies? Are there alternative payment models that would better align the interests of rating agencies with investors?”