Yesterday, Allison Lee, Acting Chair of the SEC, directed the staff of Corp Fin to “enhance its focus on climate-related disclosure in public company filings.” This action should come as no surprise. As I wrote just yesterday, Lee has used almost every opportunity to emphasize the importance of the SEC’s taking action to mandate climate risk disclosure. (See, for example, this NYT op-ed, her remarks at PLI entitled Playing the Long Game: The Intersection of Climate Change Risk and Financial Regulation and this statement, “Modernizing” Regulation S-K: Ignoring the Elephant in the Room.”) “Now more than ever,” Lee said in her statement, “investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future.” But what will this enhanced focus on climate entail?
Is mandatory climate risk disclosure a done deal yet? Acting SEC Chair Allison Lee has taken almost every opportunity to emphasize the importance of the SEC’s taking action to mandate climate risk disclosure. (See, for example, this NYT op-ed, her remarks at PLI entitled Playing the Long Game: The Intersection of Climate Change Risk and Financial Regulation and this statement, “Modernizing” Regulation S-K: Ignoring the Elephant in the Room.”) And now, according to Reuters, Acting Corp Fin Director John Coates remarked during a conference on climate finance that the SEC “‘should help lead’ the creation of a disclosure system for environmental, social and governance (ESG) issues for corporations.” But how to craft the new rules? With the new Administration in Washington, many of the think tanks and advocacy groups are making their voices heard on just that—crafting mandatory climate disclosure regulations. The reports of two are discussed below; there are definitely some common threads, such as the need for the SEC to onboard climate expertise and organize a platform or two for stakeholder input. Their recommendations may also provide some ideas for voluntary compliance and some insight into the direction the SEC may be going.
In his 2021 letter to CEOs, BlackRock CEO Laurence Fink asked companies to disclose a “plan for how their business model will be compatible with a net zero economy”—that is, “one that emits no more carbon dioxide than it removes from the atmosphere by 2050, the scientifically-established threshold necessary to keep global warming well below 2ºC.” (See this PubCo post.) Now BlackRock Investment Stewardship has posted a powerpoint presentation that sets out BIS’s expectations in greater detail. The presentation concludes with a caution that, “where corporate disclosures are insufficient to make a thorough assessment, or a company has not provided a credible plan to transition its business model to a low-carbon economy, including short- medium- and long-term targets, we may vote against the directors we consider responsible for climate risk oversight.”
SEC Commissioner Allison Lee has been speaking up quite a bit recently about diversity and inclusion and about climate change—and not just at SEC open meetings. In her recent dissents in voting on proposals regarding amendments to Reg S-K disclosure requirements related to the descriptions of business, legal proceedings and risk factors (see this PubCo post) and amendments to the SEC’s shareholder proposal rules (see this PubCo post), Lee did not hesitate to express her misgivings about the failure of the first proposal to mandate disclosure regarding diversity and climate change and the anticipated adverse impact of the second proposal on shareholder proposals related to ESG. In recent remarks to the Council of Institutional Investors Fall 2020 Conference, Diversity Matters, Disclosure Works, and the SEC Can Do More, and in this NYT op-ed, Lee reinforces her view that the SEC needs to do more in terms of a specific mandate for diversity and climate disclosure.
Non-profit CDP (fka the Carbon Disclosure Project) has released its analysis of the responses to its climate change questionnaire for 2018 from two groups of companies—a large group of almost 7,000 respondents and, analyzed separately, a group of 366 respondents that were among the world’s 500 largest companies (by market cap). The analysis focused on the risks and opportunities presented by climate change and, for the first time, the analysis considered companies’ expectations regarding the potential financial impact of climate risk. In the aggregate, the amount reported was eye-popping, if not exactly surprising, and, given that many companies did not respond at all, is undoubtedly an underestimate. Notably, however, the aggregate amount companies attributed to potential climate-related opportunities was even “bigger than the risks.” The significance of the potential financial implications, together with the imminence of these risks, suggest that companies may need to think hard about climate risks and the associated financial implications in crafting their public disclosures.
In Senate testimony, SEC Chair offers insights into his thinking on a variety of issues before the SEC
In testimony last week before the Senate Committee on Banking, Housing and Urban Affairs, SEC Chair Jay Clayton gave us some insight into his thinking about a number of issues, including cybersecurity at the SEC, cybersecurity disclosure, the regulatory agenda, disclosure effectiveness, the shareholder proposal process, climate change disclosure, conflict minerals, compulsory arbitration provisions, stock buybacks, the decline in IPOs and overregulation (including some interesting sparring with Senator Warren). Whether any of the topics identified as problematic result in actual rulemaking—particularly in an administration with a deregulatory focus—is an open question.
ExxonMobil shareholders approve climate change proposal — are shareholder proposals on climate change becoming a thing?
by Cydney Posner Are we witnessing the beginning of a new trend? The history of shareholder proposals to enhance disclosure regarding climate change has been a dismal one. But suddenly, this proxy season, we have climate change proposals succeeding at two — and, as of today, three — major companies. […]
by Cydney Posner According to BNA, at a recent conference, Corp Fin Director Keith Higgins reported that the highest proportion of comments so far received on the Reg S-K Concept Release related to better environmental and social responsibility disclosure. As SEC Chair Mary Jo White indicated a few months ago: the […]
by Cydney Posner With the SEC asking proactively in its concept release (see this PubCo post) whether to mandate sustainability disclosure, the question of the relevance to investors of sustainability issues has assumed a new prominence. According to the SEC, some investors have requested more disclosure of a variety of […]