A Look at the Current State of Sustainable Regulation and Public Policy: The Impact on Capital Markets
The current state of sustainable regulation and public policy in the United States is evolving rapidly. There is an active normative formation regarding disclosure. The U.S. Securities and Exchange Commission is stepping up its oversight of sustainable/ESG related regulation. Policymakers have placed themselves on a path to require extensive disclosures from listed companies, and they are hoping that markets demand more aggressive targets. The dynamic is expected to take 18-24 months to unfold.
The impact on capital markets will be profound. Every listed company will soon be required to deliver quantitative disclosures regarding sustainability. The European Union (EU) has already taken action in this area. It is widely expected that Gary Gensler, the Chair of the U.S. Securities and Exchange Commission, will pick up the baton from his predecessor, Allison Herren Lee, to initiate a set of required sustainability disclosures from U.S. issuers over the next 12-18 months.
The current state of public policy is evolving but the foundation for activities such as carbon pricing, data disclosure, risk management, scenario and stress testing was laid out in 2020. Policy makers require roughly 18 months to finalize and implement reforms.
Most people believe that the policy work regarding climate disclosures will hit high gear this year, after the Biden Administration took office. However, the workstreams started gaining momentum last year amid the pandemic. Policy Risk Time Series charts from BCMStrategy, Inc.'s PolicyScope Platform, there were increased policy developments regarding climate-related disclosures as early as January 2020.
The PolicyScope platform generates structured data from the global public policy process. It then quantifies public policy risks and anticipates regulatory policy trajectories. The platform generates an unbiased look at policy developments even when media coverage of the technical moves is nonexistent. As outlined below, PolicyScope alternative data measured, captured, and time-stamped every global move regarding climate-related disclosures (and other ESG policy issues) throughout 2020.
Source: BCM Strategy, Inc.’s PolicyScope Platform via Bloomberg Enterprise Access Point (BEAP)
Source: BCM Strategy, Inc.’s PolicyScope Platform via Bloomberg Enterprise Access Point (BEAP)
Looking ahead, the Big Four accounting firms will eventually play a key role. Since the establishment of common accounting standards in the early 1970’s, with the formation of the Financial Accounting Standards Board (‘FASB’) and subsequent adoption by public and private companies around the world, there has been growing pressure on organizations to understand and report their environmental and societal impacts. However, as of today, ESG practices are still not mandated by the U.S. government.