Costs associated with the SEC's proposed ESG reporting rules may increase public companies' regulatory reporting costs from about $2 billion to $8.4 billion per year, agency commissioner Mark Uyeda said today.

The SEC commissioner, speaking at the Cato Summit, a conference of the libertarian Cato Institute, said the costs raise questions about the long-term viability of environmental, societal and governance focused investing.

Whether these trends can be stand up over time is an open question, especially if many of these ESG funds are essentially plays on "overweighting the technology sector and underweighting the energy sector."

“Is ESG investing in its current form itself sustainable?” Uyeda asked during a conference session entitled, “The Rise of ESG and the Future of Financial Regulation.”

Uyeda said that the SEC, which has regulatory powers over about 4,266 U.S. public companies, found in a March survey that it costs U.S. companies a total of about $2 billion per year to file their S1 forms and annual reports to the agency. Subsequent studies have shown that amount would rise to $8.4 billion if the SEC enacts a series of proposed ESG reporting rules that are under consideration.

Even that amount may be too low because it assumes legal costs of $600 per hour, Uyeda said.

“There will be increased costs and these costs will be ultimately born by investors,” he said.

The final costs could also rise because what is actually involved as ESG focuses can shift from measuring greenhouse gases emissions to the impact on water-related metrics or other topics, making it very difficult for companies to achieve economies of scale in their measurement factors, he said.

“This ever-changing focus of ESG combined with the lack of consensus of what constitutes ESG could make it difficult for companies to decrease their compliance costs over time,” Uyeda said.

Unlike costs, benefits can be difficult to quantify, and even when quantifiable, the results are mixed, he said.

A study by two Vanguard investment strategists recently concluded that ESG funds have neither higher nor lower returns or risks than the broader markets, which could make it difficult to justify billions in additional disclosure costs, he said.

“Whether these trends can be sustained over the long run is an open question, especially if many of these ESG funds are essentially plays on overweighting the technology sector and underweighting the energy sector,” he said.

For ESG as a whole the net benefits may be difficult to evaluate because of a lack of agreement on what factors constitute ESG, much less how much weight each factor should be given, the commissioner said.

“Not surprisingly, one need look no further than rating agencies, whose evaluations reflect widespread disagreement. It could simply reflect that ESG factors are so individualistic. It is difficult to consistently calibrate ESG on a uniform basis,” he said.

A recent MIT study found the average correlation between six prominent ESG rating agencies to be just 54% compared to 99% for credit agencies.