The Securities and Exchange Commission will seek public input on establishing a regime for requiring corporations to disclose the risks they face from climate change and policies to curb emissions.
The request for comment, which acting SEC Chairwoman Allison Herren Lee announced Monday, is likely a first step toward the agency requiring such disclosures from companies. Investors, including large asset managers such as BlackRock, and environmental groups have strongly called for mandatory disclosures, especially as they say it becomes increasingly clear that climate change poses a serious risk to the financial system.
SEC SIGNALS BACKING FOR REQUIRING COMPANIES TO DISCLOSE CLIMATE RISKS
“It’s time to move from the question of ‘if’ to the more difficult question of ‘how’ we obtain disclosure on climate,” Lee said during remarks at a virtual event hosted by the Center for American Progress.
Lee said she is seeking input on questions such as what data and metrics the SEC should use, whether disclosure should be industry-specific, and how to ensure a climate disclosure regime is “sufficiently flexible” to adapt to market and scientific developments.
To date, the SEC only has voluntary guidance, crafted in 2010 under the Obama administration, laying out how public companies can disclose climate risks, but it doesn’t require that information. And while there are several voluntary climate and environmental disclosure systems globally, whether and how much companies are issuing information consistent with those frameworks is varied.
Lee has suggested a mandatory framework is necessary to close the gaps between the information companies are providing and what investors are demanding.
The SEC is setting a 90-day deadline for comments on climate disclosure.
In her remarks, Lee said climate change, along with environmental, social, and governance, or ESG, investing, are her top priorities, and that focus is driven by the increasing attention of investors to those issues.
“On ESG, I think they’ve been crystal clear that the information is material, and they’re not getting what they need,” Lee said.
In addition to working on climate change disclosure, Lee said she thinks the SEC should also move to develop a standardized framework for ESG disclosures.
Along with ESG disclosures, she said, should come a focus on companies disclosing their political spending. The SEC is currently prohibited by Congress, through a rider on an appropriations bill, from issuing a rule on political spending disclosures, but Lee said the issue is “inextricably linked” to ESG and climate change.
“Consider, for instance, research showing that many companies have made carbon neutral pledges, or otherwise state they support climate-friendly initiatives, have donated substantial sums to candidates with climate voting records inconsistent with such assertions,” Lee said.
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Lee’s remarks follow a number of recent moves by the SEC, under her direction, to bolster its focus on climate change. That includes the creation of a task force on climate and ESG, as well as a directive to the SEC’s Division of Corporation Finance to review the extent to which public companies are disclosing information on climate risks.
