HomeBusinessInvestingSEC Commissioner Hester M. Peirce’s Chocolate-Covered Ideological Screed

SEC Commissioner Hester M. Peirce’s Chocolate-Covered Ideological Screed

One week ago today on July 20, 2021 SEC Commissioner Hester M. Peirce (R) gave a 4,725 word speech to the Brookings Institution titillatingly titled “Chocolate-Covered Cicadas.” [Note to reader: (R) is the euphemism for the more accurate designation of the Cult of Trump (CoT).] The purpose of this cute title eludes me because I never figured out where the chocolate-covered comes from. The only time it’s mentioned again is the snide closing line of her speech in which she says that in 2038 “perhaps even the chocolate-covered cicadas will be net-zero carbon.”

In her speech Peirce notes a request from her fellow Commissioner Allison Herren Lee for comments on climate change. Yes, Commissioner Peirce, climate change is real. Peirce thought it helpful to point out that Lee’s request came on the Ides of March. In her typical soft dig sleight of hand, Peirce points out that “it was not a Commission request.” Nor did the SEC request Peirce to give her speech and here she gives the standard disclaimer “that the views I represent are my own views and not necessarily those of the SEC or my fellow Commissioners.” For this we can count our blessings.

Once again, the Commissioner camouflages her hard-right ideological views by couching her remarks in the pretext of sparking “a textured conversation about the complexities and consequences of a potential ESG rulemaking.” Perhaps in hope of brandishing some green credentials, Peirce plays the naturalist by beginning with an endearing tutorial on the 17-year Cicadian cycle which she somewhat incoherently links to ESG rulemaking.

The construction of her speech nicely maintains the charade of wanting to have a conversation. She organizes it in terms of 10 “theses” (her own rendition of a slimmed down Diet of Worms) supported by 63 (!) footnotes. I want to follow the Commissioner’s nice rhetorical flourish of pointing out the day of her fellow Commissioner’s remarks. Thus I hope it is equally helpful that I tie each of her theses to one of the 10 national holidays celebrated on July 20.

Thesis 1 (National Lollipop Day): ESG as a category of topics is ill-suited, and perhaps inherently antithetical, to the establishment of clear boundaries and internal cohesion.

Peirce’s main complaint here is “ESG’s lack of a coherent unifying principle” and she fears that as “more and more issuers and asset managers are grasping for the ESG label, they likely will press to expand the number of topics further to make it easier for them to justify calling themselves ESG.” Last time I looked I didn’t see groups like the Business Roundtable and the U.S. Chamber of Commerce pressing for more ESG disclosure. Quite the opposite, in fact. When it comes to asset managers, all they are asking for is disclosures that are material to their investment decisions. More on this to follow.

The other half of Peirce’s treatment of this thesis is a rather bizarre discussion about recycled plastics and women. She concludes that women are being treated as interchangeable with each other and with recycled plastic. Here Peirce expresses her umbrage: “Offense taken on both counts.” Gotta tell ya this is a pretty rich lollipop coming from a woman who posted this rather sexist Tweet:

Thesis 2 (International Chess Day): Many ESG issues lack a clear tie to financial materiality and therefore do not warrant inclusion in SEC-mandated disclosure.

This thesis is grounded in such a profound misunderstanding I feel like I’m playing chess with someone who’s playing checkers. Peirce natters on about existing ESG disclosure rules, misinterpreted academic studies, the EU’s focus on “double materiality,” and evaluating the ESG claims of fund managers and advisors. All of this is completely beside the point. No one is going to force the SEC to wander into domains where it doesn’t belong and doesn’t want to be. This is just one example of Peirce’s overarching narrative try to turn the issue into something it’s not. (Kind of like saying “The election was stolen!” enough times and hoping people will believe you.) This is standard operating procedure for the palpably prolific Peirce: Politicize something that isn’t political and then complain about it being so.

Throughout her writings and speeches Peirce purports that as long as you stay away from the dreaded “ESG” 😱, materiality is well-defined. She calls the SEC’s “guiding principle” of materiality an “objective standard.” It is not. My Oxford colleague Richard Barker and I have pointed this out and I have elaborated on it further.

I suspect Commissioner Peirce is too busy to be bothered by academics like me who do not share her views, so I suggest she read “SEC Staff Accounting Bulletin: Number 99—Materiality” of August 12, 1999. It is not included in any of her 63 learned footnotes.  This very helpful bulletin notes that “Under the governing principles, an assessment of materiality requires that one views the facts in the context of the ‘surrounding circumstances,’ as the accounting literature puts it, or the ‘total mix’ of information, in the words of the Supreme Court.” Kind of hard to ignore climate change as a “surrounding circumstance” affecting issuers and the fact the “total mix” of information continues to evolve as environmental and social issues affect the ability of companies to create value for their shareholders over the long term.

This bulletin also notes that “both ‘quantitative’ and ‘qualitative’ factors in assessing an item’s materiality” need to be considered, that “FASB has long emphasized that materiality cannot be reduced to a numerical formula,” and “that no general standards of materiality could be formulated to take into account all the considerations that enter into an experienced human judgment.” So much for the Commissioner’s handy hatchet for attacking materiality in an ESG context.

Thesis 3 (Space Exploration Day): The biggest ESG advocates are not investors, but stakeholders

Wow, this thesis really comes from Outer Space. Peirce complains that, like ESG, “stakeholders” “is a malleable term” that includes “employees, neighbors, customers, suppliers, and regulators.” (Gotta admit this is the first time I’ve seen “neighbors” on a list of stakeholders, but I’d like to be equally inclusive , so I will add “dog walkers.”) Then drawing a prim line in the sand, she goes on to say, “As important as these groups are to issuers, they are not at the heart of the SEC’s mission, which is to protect investors, facilitate capital formation, and foster fair, orderly, and efficient markets.”

Since Peirce notes in her introduction “I have learned much from these thoughtful comments as I contemplate the SEC’s role in ESG disclosures,” I’m kind of scratching my head on this given her complaint in Thesis 3. Maybe she did some selective reading. That would be perfectly understandable. I know an SEC Commissioner has a range of responsibilities on many important issues. A total of 5,782 comment letters were received. That is admittedly a lot to read.

Fortunately, on its website the SEC has usefully organized all of these letters into four categories: Letter A (19—0.3 percent), Letter B (2,263—39.1 percent), Letter C (2,002—34.6 percent), and Letter D (1,498—25.9 percent). Let’s do a quick review of each of them.

Letter Aasks that “disclosure requirements be streamlined to follow verified scientific methods shown to reduce a brand’s climate impact, such as the standards set forth by the Science Based Targets initiative.” Science, huh? What temerity!

Letter B is a mixture of shareholder and stakeholder concerns. It asks the SEC to “require that corporate managers be more transparent with shareholders regarding their long-term plans” but also wants to know about “other material issues like whether their hiring practices genuinely aim to increase diversity and representation on their board, in what countries they pay taxes, how they treat their workforce, and what their human rights impacts are.” How dare they be asking for the SEC to be looking at these material issues that are of great importance to mainstream investors! So I’ll give Peirce the benefit of the doubt on the second request and label it a stakeholder view.

Letter C is a quintessential shareholder letter. It states, “Climate change poses potentially catastrophic risks to the environment, communities, and the financial system. As a result, it is vital for you to require climate-related disclosures in order to meet the SEC’s mandate to protect investors; ensure fair, orderly, and efficient markets; and facilitate capital formation.” Sound familiar, Commissioner? This letter also requests that the disclosures “Be mandatory and standardized in a way that makes them comparable across firms and sectors” and “Be easily accessible, transparent, clear, and decision-useful to all investors across different levels of sophistication.”

Letter D is a quintessential stakeholder one. “For too long, corporations and banks have hidden their contributions to the climate crisis and misled the public about their ability to play a role in stopping it. The Securities and Exchange Commission (SEC) has a responsibility and opportunity to stop this corporate greenwashing by requiring meaningful disclosure.” This letter also asks for other disclosures similar to those in Letter B and concludes, “As a stakeholder in the economy and financial system, a member of society, and an inhabitant of this planet, this information matters to me and I want the SEC to make sure it is accessible.”

Let’s run the numbers. Don’t want any Fact Fakes here! Call science a stakeholder rather than shareholder issue to show Peirce I have no hard feelings and evenly split Letter B. That gives us 54.2 percent for shareholders and 45.8 percent for stakeholders. This is a bigger margin than in the Presidential election. Which, by the way Commissioner, Biden won.

I also note that some letters are more important than others. Among them were very supportive letters from three large asset managers (BlackRock, State Street, and Vanguard) who collectively have nearly $20 trillion in assets under management. The same is true for the ones submitted by the country’s four largest pension funds (from CalPERS, CalSTRS, New York State, and New York City) who together have around $1.2 trillion in AUM.

Thesis 4 (Fortune Cookie Day): ESG rulemaking is high-stakes because so many people stand to gain from it.

“Any SEC rule can create money-making opportunities, but the potential breadth and novelty of ESG issues makes an ESG rule a particularly lucrative one, and thus may make it hard for us to get objective input.” Just as I’ve gotten my head around the no longer grand GOP walking away from free trade, declaring climate change a hoax (and removing the term from government websites), deciding to support authoritarian dictatorships rather than democratic regimes, and now working to undermine the very foundations of our democracy (by spreading conspiracy theories, restricting voting rights, and refusing to be vaccinated), it seems like it wants to throw the Fortune Cookie of free enterprise under the bus as well. I must confess this rather takes my breath away

But wait! Maybe I’m not thinking expansively and creatively enough in the way Peirce does in her Diet of Worms. Let’s start with auditing of financial statements, a money maker if there ever was one. The audit fees of the Big Four (Deloitte, EY, KPMG, and PwC) alone totaled $57 billion in 2025. Making the reasonable assumption that audit fees are a function of market cap and noting that the U.S. has about 56 percent of global market cap, we’re talking around $32 billion. Okay, let’s be conservative (in the bygone sense of the word) and call it $20 billion. Add whatever number you want to audit work not performed by the Big Four. That’s gotta be a big number as well. But even $20 billion is a big number compared to a paltry prospective $1 billion for the ESG data market in 2021.

There are three options here to overcome these difficult times. The first is to no longer require audits—and might as well do away with mandated financial reporting as well. Sorry, but this is beyond even Peirce’s wildest dreams. The second is that we ask these folks to work for free or put them on permanent unemployment. The former might fly in the CoT, but the latter certainly won’t. The third, and most promising, is to NATIONALIZE the audit profession! I mean, with so many other tenets of the former GOP going out the window, what’s the harm with a little Communism, right?

But why stop there? Credit rating agencies, sell-side analysts, financial advisors, and banks all rely on financial information. Heck, that’s true of the whole financial system. Let’s go with a LOT of Communism and nationalize the whole financial services industry and then Washington can control around a quarter of the U.S. economy. But it will take more restrictions on voting rights to give the CoT better control of election results.

Thesis V: (International Cake Day) “Good” ESG is subjective, so writing a rule to highlight the good, the bad, and the ugly will be hard.

“Many rating firms exist now because people do not share uniform views of what good ESG practices are for issuers or good ESG portfolios for asset managers. As others have pointed out, ESG rankings can differ dramatically depending on who is doing the ranking.” I agree! Where I don’t agree is that “Additional disclosure, according to one study, could exacerbate these differences.” This thesis is completely backwards. Standards are the solution to the problem, not an exacerbation of it.

For this thesis the Commissioner is trying to bake a cake with some ingredients meant for a paella. Ratings and standards for disclosure aren’t apples and oranges, they’re more like fruits and vegetables. The origin of ESG ratings was due to a lack of relevant, reliable, and comparable corporate disclosure on material ESG topics. ESG ratings are a proxy for lack of high-quality disclosure. Not surprisingly, these ratings differ based on the social origins of the firm. As standards for ESG disclosure are developed and required, the importance of simple aggregate ESG ratings will decrease.

Standards for ESG disclosure aren’t about making subjective judgments. They’re about providing investors with relevant, reliable, and comparable information to make their own judgments about what is good and what is bad, what is pretty and what is ugly.

Halfway through this mini Diet of Worms, it is looking pretty ugly and unappetizing to me.

Thesis 6: (Nap Day) An ESG rulemaking cannot resolve the many debates around ESG models, methodologies, and metrics

This thesis is a bit of a snooze for me. Peirce argues that “Because ESG models, methodologies, and metrics involve a lot of assumptions and uncertainties, issuers take different approaches to reporting.” Models and methodologies are irrelevant to the discussion, just as financial models and methodologies are irrelevant to setting standards for financial reporting. The issue is getting standards on the metrics. Sure, there are assumptions and uncertainties. Just as there is with Level 3 Fair Value in which companies are required to speculate what market prices would be if those markets existed. Now talk to me about assumptions and uncertainties.

Standards are a social construct. They are not based on the laws of physics. They are made by people for people. This is as true for financial reporting standards as it is for sustainability reporting standards.  

Thesis 7: (Moon Day) Emotions around ESG issues may push us to write rules outside our area of authority

According to Peirce, “Conversations about ESG matters, particularly those related to climate, are threaded  with fear, guilt, and despair born of real concern for the planet, animals, plants, and people.” Whether it is the confession of a guild-ridden fellow chocaholic or Greta Thunberg’s latest plea to world leaders, these topics are riddled with emotion.” Fly me to the moon with this thesis. Putting aside her dismissive tone, I would say that it is emotion based on science and concerns about future generations, but I know this is of little concern in the CoT.

She goes on to say, “Emotions…can tempt us to wander outside our limited regulatory mission to address any number of issues that deeply concern us.”

This sounds like Peirce is planning a Pity Party for the SEC. Really? The SEC now has a very capable chairman in Gary Gensler who reports directly to the President of the United States of America. The organization has an annual budget of nearly $2 billion and an excellent staff of around 4,500 professionals. It is demeaning for Peirce to say about her own organization that it is going to get pushed around by a bunch of emotional neighbors, dog walkers, and other stakeholders.

Thesis 8: (National Ugly Truck Contest Day) ESG issues are inherently political, which means that an ESG rulemaking could drag the SEC and issuers into territory that is best left to political and civil society institutions.

Ah, I get it. Very clever, Commissioner. The Candyman strategy! Say “Political, Political, Political, Political, Political” and a person’s brain cells turn to mush. When she or he looks in the mirror all they can see is an eerily smiling visage of Peirce intoning “E S G I S P O L I T I C A L.” Peirce hows particular angst about “immaterial political spending by corporations.” Since when did the Commissioner become the Omniscient Arbiter (OA) of what is material? If investors want to know if a company’s political spending matches or is in conflict with their flowery words about purpose and sustainability, seems like it’s pretty material to me.

But there’s more than meets the eye here. Here Peirce is playing the “ESG is an ugly truck card.” Peirce is a very smart woman and expresses herself in deft and disarming ways. But I’m no fool. She knows that inevitably, and for far worse rather than better, the political pendulum will swing and one day we will again have a member of the CoT as our President. Then any rulemaking done by the SEC on disclosure can be undone. I think Peirce is licking her chops at the prospect of this and laying the rhetorical groundwork for doing so.

Thesis 9: (National Ice Cream Soda Day) ESG disclosure requirements may direct capital flows to favored industries in a way that runs counter to our historically agnostic approach.

“Directing capital flows to green uses is unabashedly at the heart of international ESG standard-setting efforts, and many comments want us to follow suit. Following this course would transform the SEC, as author of those mandates, into an active participant in shifting capital flows to purportedly green, and away from purportedly brown investments.” Peirce never defines what she means by “green,” although she clearly has mixed feelings about it. But that is beside the point. Having standards for measuring how “green” a company is doesn’t move capital. If green has been fully priced into the stock, it’s not one that will move capital. If green, like greed and ice cream sodas, is good, then a brown stock that has the prospect of becoming green and see its price go up is an attractive investment.

Once again, our distinguished Commissioner reveals her demeaning attitude towards the investment community. Asset managers and asset owners have a fiduciary duty to earn risk-adjusted returns for their clients and beneficiaries. They aren’t gonna do green stuff to simply make themselves look good and make Peirce mad. The first time I read Peirce’s condescending view of the professionals in the investment community, I was amazed. No longer. I now see it as a Signature Stance (SS) of hers.

Thesis 10: (World Jump Day) An ESG rulemaking could play a role in undermining financial and economic stability.

Here Peirce is taking the courageous jump of channeling Chicken Little. “The sky is falling! The sky is falling!” She reaches this conclusion by confounding standards for reporting on ESG topics with an inflexible “rule-based flow of capital” that “could destabilize the financial system” since “lots of money will be mandated to chase green investment opportunities.” The situation is even more dire for her. “The world’s single-minded focus on sustainability also could cause economic dislocation” and cites  the book Apocalypse Never by Michael Shellenberger, a former public relations professional with no financial or scientific background. He made a name for himself in his famous letter in which begins “On behalf of environmentalists everywhere, I would like to formally apologize for the climate scare we created over the last 30 years.”

In the meantime, note that it was the Financial Stability Board (FSB—italics mine to help the Commissioner) which created the Task Force on Climate-related Financial Disclosures (TCFD—ditto on the italics). Consider also the Glasgow Financial Alliance for Net Zero (GFANZ) which is comprised of “Over 160 firms with $70 trillion in assets [who] have joined forces behind a common goal: steer the global economy towards net-zero emissions and deliver the Paris Agreement goals.” The TCFD has played a major role in helping to develop standards for reporting on climate in order for the GFANZ members to achieve their goal. Yet as I look in the mirror, I see OA Peirce scowling at me and saying, “Look at all that dumb money chasing the wrong kind of green.”

The reader now has two choices to make. The first is whether to side with $70 trillion in AUM or Peirce for determining what’s material. The second is whether to rely on Shellenberger or the FSB and GFANZ for ensuring financial and economic stability.


Peirce begins her conclusion by rather awkwardly invoking her beloved cicadas, but she also says that by 2038 (when the cicadas appear again) she wants “a world that is greener, cleaner, healthier, and more prosperous than the one their forebears saw in 2021.” I couldn’t agree more. So, Commissioner, how about you stop being an obstacle to making this happen?

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