Archive · 13 Nov 2025
Rajan: SEC Should Not Dilute Corporate Sustainability Disclosures
Imagine companies are like students in a school.
The teacher (the SEC) asks them to share information about how they are doing.
One teacher, Mr. Atkins, says students should only share things that help them get a better grade on a test about making money.
But another expert, Mr. Rajan, says students should also share information about being good helpers to others and taking care of the planet.
Mr. Rajan believes that being a good helper and taking care of the planet can actually help students do better in the long run, even if it's not directly on the money-making test.
For example, if a company pollutes, it might have to pay a lot of money later to clean up, which is bad for their 'grade'.
Also, people might not want to buy things from a company that is not kind to the planet.
So, even if some people think these 'good citizen' reports are just 'trends', they can really matter to how well a company does and what people think of it.
Mr. Rajan thinks the teacher should ask for these reports to help everyone make smarter choices.
Raghuram Rajan argues against the SEC diluting corporate sustainability disclosures, asserting they are material to investors and society.
SEC Chairman Paul Atkins believes disclosures should be limited to information critical for an investor's financial decision-making.
Rajan contends that sustainability practices impact multinational firms' costs, regulatory risks, cross-border strategies, and customer appeal.
A Paris court found TotalEnergies misled customers about its energy transition efforts, highlighting the financial materiality of green claims.
Rajan suggests socially motivated investors may form a majority and that companies should consider their preferences for direct action on concerns.
- Who
- Raghuram Rajan (author), Paul Atkins (SEC Chairman), investors, companies, European regulators, and a Paris court
- What
- A debate on whether the SEC should mandate corporate sustainability (ESG) disclosures, with Rajan arguing they are material to investors and society, and Atkins suggesting they should only focus on financially material information for investors.
- When
- Recent commentary in the Financial Times
- Where
- Primarily the United States (SEC context) and Europe (EU regulations, Paris court case)
- Why
- To determine what information is material to investors and whether sustainability practices fall under that umbrella, impacting corporate accountability, financial performance, and societal concerns.
Raghuram Rajan's View (Pro-Sustainability Disclosures)
Paul Atkins' View (Skeptical of Sustainability Disclosures)
Materiality of Sustainability Information
Raghuram Rajan's View (Pro-Sustainability Disclosures)
Information about environmental, social, and governance (ESG) practices is material to financial performance because it affects multinational firms' costs of doing business, potential regulatory fines (like TotalEnergies in France), cross-border business strategies, and customer purchasing decisions. It can also attract skilled workers and improve firm performance.
Paul Atkins' View (Skeptical of Sustainability Disclosures)
Only information that a reasonable investor would consider important to an investment decision, with the objective of maximizing financial return, should be disclosed. Rules for social change or motives unrelated to financial return fail this test.
Shareholder Preferences
Raghuram Rajan's View (Pro-Sustainability Disclosures)
Shareholders may prefer that companies act directly on their environmental and social concerns, even if it means sacrificing some immediate profit, as this can be more cost-effective than remediation later. Socially motivated investors might even form a majority and their interests should not be ignored.
Paul Atkins' View (Skeptical of Sustainability Disclosures)
Companies should focus on maximizing financial returns for shareholders. Shareholders who wish to effect social change can use their enhanced wealth to pursue those goals independently.
Definition of 'Political Fads'
Raghuram Rajan's View (Pro-Sustainability Disclosures)
Dismissing sustainability concerns as 'political' is itself a politicization. A wide variety of interests consider these disclosures material, and their effects should be recognized and traded off in SEC mandates.
Paul Atkins' View (Skeptical of Sustainability Disclosures)
Disclosure requirements should not be driven by 'political fads' or objectives unrelated to maximizing financial return.
- Author
- Raghuram Rajan, Professor of Finance at University of Chicago Booth School of Business, former Governor of RBI
- Commentary Reference
- Financial Times
- Counter Argument Source
- Paul Atkins, US Securities and Exchange Commission (SEC) Chairman
- European Regulation Mentioned
- Corporate Sustainability Reporting Directive (CSRD)
- Legal Case Example
- TotalEnergies case in Paris court for misleading commercial practices regarding climate claims.