SEC Seeks Public Input on Climate Change Disclosures

The last time the Securities and Exchange Commission (SEC) issued an interpretive release that provided guidance to stock issuers on how existing disclosure requirements apply to climate change matters was in 2010.

“The 2010 Climate Change Guidance noted that, depending on the circumstances, information about climate change-related risks and opportunities might be required in a registrant’s disclosures related to its description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations,” Acting SEC Chair Allison Herren Lee says in a statement on the SEC’s website. “The release outlined certain ways in which climate change may trigger disclosure obligations under the SEC’s rules. It noted legislation and regulations governing climate change, international accords, changes in market demand for goods or services, and physical risks associated with climate change.”

Lee notes that in the past 11 years, “investor demand for, and company disclosure of information about, climate change risks, impacts and opportunities has grown dramatically.”

She says the SEC now aims to determine if current climate change disclosures “adequately inform investors about known material risks, uncertainties, impacts and opportunities—and whether greater consistency could be achieved.”

Therefore, Lee says, the SEC has decided to evaluate its disclosure rules on climate change. The commission is asking for public input on disclosure rules from investors, registrants and other market participants. It encourages commenters to include empirical data and other information, Lee says.

The request for comments follow the SEC’s creation earlier this month of a “Climate and ESG Task Force” within the Division of Enforcement. Also earlier this month, the SEC said in its 2021 list of examination priorities that it would enhance its focus on climate change and its impact on equity market participants.

The SEC asked commenters to consider the following questions:

1.) How can the commission best regulate, monitor, review and guide climate change disclosures in order to provide more consistent, comparable and reliable information for investors, while also providing greater clarity to registrants as to what is expected of them?
2.) What information related to climate risks can be quantified and measured?
3.) What are the advantages and disadvantages of permitting investors, registrants and other industry participants to develop disclosure standards mutually agreed to by them?
4.) What are the advantages and disadvantages of establishing different climate change reporting standards for different industries, such as the financial sector, oil and gas, transportation, etc.?
5.) What are the advantages and disadvantages of rules that incorporate or draw on existing frameworks, such as, for example, those developed by the Task Force on Climate-Related Financial Disclosures (TFCD), the Sustainability Accounting Standards Board (SASB) and the Climate Disclosure Standards Board (CDSB)?
6.) How should any disclosure requirements be updated, improved, augmented or otherwise changed over time?
7.) What is the best approach for requiring climate-related disclosures? For example, should any disclosures be incorporated into existing rules, or should a new regulation devoted entirely to climate risks, opportunities and impacts be promulgated?
8.) How, if at all, should registrants disclose their internal governance and oversight of climate-related issues?
9.) What are the advantages and disadvantages of developing a single set of global standards applicable to companies around the world?
10.) How should disclosures be enforced or assessed?
11.) Should the commission consider other measures to ensure the reliability of climate-related disclosures?
12.) What are the advantages and disadvantages of a “comply or explain” framework for climate change that would permit registrants to either comply with, or if they do not comply, explain why?
13.) How should the SEC craft rules that elicit meaningful discussion of the registrant’s views on its climate-related risks and opportunities?
14.) What climate-related information is available on private companies?
15.) In addition to climate-related disclosure, the staff is evaluating a range of disclosures with regards to environmental, social and governance (ESG) matters. Should climate-related requirements be one component of a broader ESG disclosure framework?

Interested parties can submit their comments on a webform or via email to: rule-comments@sec.gov, with the subject line “Climate Disclosure.” Comments are due by June 11.

The SEC will post submissions on its website, www.sec.gov, so it says commenters should only submit statements that they do not mind being made public.