The Biden administration is signaling it is supportive of efforts to require companies and financial institutions to disclose the risks their businesses faces from climate change.
The move would be welcomed by many big investors, including asset managers such as BlackRock, as well as sustainable investment groups and environmental activists who would see it as a tool for pressuring companies to cut emissions in line with global climate targets.
Corporate disclosures would address not just the risks that company operations face from the effects of climate change but also vulnerabilities that company business plans face from policies to curb greenhouse gas emissions aggressively.
Allison Herren Lee, whom President Biden chose as acting chairwoman of the Securities and Exchange Commission, strongly suggested Monday she’ll push for mandatory climate disclosure from corporations. She argued there are shortcomings “inherent in a voluntary framework,” such as significant gaps in the information companies choose to report and inconsistencies that make it difficult for investors to compare across companies.
“If there are no specific requirements around what must be disclosed and, importantly, how it must be disclosed, meaning is it going to be in a traditional SEC filing or something that looks almost like an ad brochure, how can investors be confident that the information is reliable?” Lee said Monday at the virtual energy conference CERAWeek hosted by IHS Markit.
CORPORATIONS INCREASINGLY SEE THE VALUE OF LOWERING EMISSIONS
She said it’s not a question of if the SEC should step in, but to what level.
The SEC is already taking steps to sharpen its focus on climate-related disclosures. Lee, in a Wednesday statement, directed the SEC’s Division of Corporation Finance to review whether and how companies are complying with 2010 guidance on climate-related disclosure.
President Biden has called for requiring public companies to disclose their climate risks and greenhouse gas emissions.
Many environmentalists and sustainable investment groups are anticipating the SEC’s forthcoming review would lead to mandatory disclosure requirements.
“The SEC is largely playing catch-up to where the U.S. corporate activity already has come,” said Brian O’Hanlon, executive director of RMI’s Center for Climate-Aligned Finance. He pointed to commitments from big U.S. banks, including one from Citigroup just announced Monday, to strive for net-zero emissions across their investment portfolios by 2050.
Those goals “rely on consistent data and reporting” from the corporations the banks are financing, but the lack of mandatory disclosure to date has left financial institutions in “murky waters,” O’Hanlon added.
While most Fortune 500 companies participate in voluntary climate disclosure, oftentimes, they’re using different approaches, said Steven Rothstein, managing director for the Accelerator for Sustainable Capital Markets at investor group Ceres. That makes it “hard to compare apples to apples,” he added.
Some sustainable investor groups are calling on the SEC to require companies also to report what they are doing to mitigate climate risks, especially those related to transitioning to a lower-carbon economy.
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Danielle Fugere, president of the shareholder advocacy group As You Sow, said she’s hoping the SEC will consider a net-zero benchmark created by Climate Action 100+, a group of more than 500 global investors representing more than $52 trillion in assets.
That framework includes metrics such as whether a company has set a net-zero emissions by 2050 goal, as well as short- and medium-term emissions goals; how detailed the company’s plan is to meet those goals; how much the company is looking to decarbonize its expenditures; and whether the company’s lobbying is aligned with its overall climate strategy.
“Investors are saying every company that continues to throw out greenhouse gas emissions, without regard to the amount, without regard to the future, that is going to impact shareholders’ portfolios across the board,” Fugere said.
