SEC’s removal of ESG from annual priorities list is tactical, experts believe

Observers say the US Securities and Exchange Commission’s omission of ESG from its 2024 priorities is designed to avoid political attention, and not a change in policy

The US Securities and Exchange Commission has dropped environmental, social and governance factors from its list of priorities for next year, while emphasising that the omission does not rule out its interest in ESG.

The SEC publishes an annual “examination priorities” report, setting out its objectives for the following year. Previous editions have featured ESG investing under its list of “significant focus areas” – for instance the SEC last year pledged to address the labelling of ESG products, among other commitments.

However, ESG investing does not feature in the latest examinations report, which was published in October. “The published priorities are not exhaustive and will not be the only issues addressed in FY24 examinations,” a spokesperson said in a written statement.

According to Emily Pierce, a former SEC assistant director for international affairs and now chief global policy officer at consultancy Persefoni: “No one should interpret this as a signal that the SEC is deprioritising the protection of investors in sustainable investing.”  

Currently, the SEC is working on proposals will see climate-related disclosures incorporated into annual reports and registration statements. First expected last year, the new rules have yet to be released. 

Under the radar

The omission of ESG is reminiscent of the approach taken by BlackRock chief executive officer Larry Fink, who dropped the term from his latest letter to investors. The 2023 letter did, however, refer to sustainable investing.

Alex Clark, a researcher in sustainable finance and climate economics at the University of Oxford, told Sustainable Views that the decision would not change much for the SEC.

“It’s probably a tactical move by the SEC to keep its scrutiny or oversight of ESG under the radar, given the ongoing political infighting over ESG in Washington,” he said. “My guess is that the SEC is trying not to make itself a target for the anti-ESG movement and will quietly get on with most of the things it planned to do anyway.

“I think it’s a smart move, given that most of the important ESG-related initiatives are either already in place or on their way to being so,” Clark added.

Alexandra Mihailescu Cichon, chief commercial officer at ESG data company RepRisk, said the omission represents “a step change from previous reports”, adding “it is not a surprise”. 

“This move is a sign that the SEC, like many within the US finance sector, is increasingly cautious of the term ESG,” she added, citing the approach taken by BlackRock. “This shouldn’t, however, be mistaken for retreat. ESG is not abandoned, just embedded.”