The U.S. Securities and Exchange Commission (SEC) is focusing on making the right climate risk information available to stockholders, so that they can make the right decisions. It has proposed rules to improve disclosures from investment advisers and investment companies, as well as rules related to corporate emissions. However, a number of names, including Blackrock (BLK), Microsoft (MSFT) (GB:0QYP), and Salesforce (CRM) (GB:0QYJ), have made some suggestions.
SEC Rules for Participants in the Investment Landscape
ESG investors are focused on the environmental, social, and governance aspects of the entity they are backing, along with the profits. While the proposed rules in May saw a flood of comments, the final rules could be different.
Garry Gensler, the SEC Chair stated, “ESG encompasses a wide variety of investments and strategies. I think investors should be able to drill down to see what’s under the hood of these strategies.”
According to the SEC, the proposed changes aim to “Categorize certain ESG strategies broadly and require funds and advisers to provide more specific disclosures.”
The SEC is sharpening its focus on ESG. Earlier this year, it set up the Climate and ESG task force to locate ESG-associated misconduct, including gaps or misstatements in disclosures on climate risks, while also pursuing tips, referrals, and complaints about ESG.
A number of leading companies have already been making progress on the ESG front and divulging information on the progress and goals. At the same time, some quarters in the market remain apprehensive. This month, Blackrock stated that the information about the way funds state their ESG impact and place strategies could be misleading for investors. Blackrock also feels that divulging proprietary details could impact competitiveness.
SEC Rules on Corporate Disclosures
Furthermore, the Commission’s rule requiring corporate disclosure of Greenhouse gas (GHG) emissions also builds on these efforts. The move should benefit a number of names that are on the frontlines of the ESG wave. At the same time, there have been corporate concerns about these disclosures.
Microsoft, which has committed to becoming carbon negative and water positive by 2030, has suggested flexibility in reporting full-year emissions and a reduction in the required granularity of certain disclosures.
While Microsoft itself is a leading name on the ESG front, its founder Bill Gates too has been making waves in the space. Most recently, his $77 million holdings in Ecolab (ECL) (GB:0IFA) put the spotlight on this water, hygiene, and infection prevention solutions provider.
What is the Future of MSFT Stock?
Overall, the Street has a Strong Buy consensus rating for Microsoft alongside an average price target of $325.77, which implies a 21.52% potential upside.
In September 2021, Salesforce announced that it achieved its 2013 goal of reaching 100% renewable energy for its operations. The company started reporting ESG information annually five years ago. It is also aiming to reach near-zero absolute total GHG emissions by 2040.
Salesforce commented that the climate-associated disclosures should be in a filing different from the annual report, as reporting within the 10-K timeline will mean incremental resources or investments. Furthermore, additional clarity would be required to define a climate-related expenditure.
What is CRM Target Price?
Salesforce too has a consensus rating of Strong Buy with an average price target of $227.67. This implies a 37.79% potential upside for the stock. That’s after a 35.3% drop in the share price so far this year.
Closing Thoughts
The SEC is marching toward bringing in more transparency in ESG-focused investing. As investors’ focus on sustainability keeps growing, these steps should help achieve reporting of clearer information with suitable metrics. Additionally, these rules will help companies that are taking strides in ESG to receive better visibility, investor attention, and capital.
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