SEC to Strengthen Climate Disclosure Requirements

The Securities and Exchange Commission (SEC) plans to bolster guidelines for climate disclosure requirements from public companies, according to a statement Wednesday from acting Chairwoman Allison Herren Lee.

Lee called for an update to climate disclosure standards in the fall. The agency’s Division of Corporation Finance will first review how public firms have complied with prior guidelines from 2010, implemented during the Obama administration, to see how the capital markets are currently managing climate risk.

“Now more than ever, investors are considering climate-related issues when making their investment decisions,” Lee said in a statement. “It is our responsibility to ensure that they have access to material information when planning for their financial future.”

Other standard-setters for environmental, social, and governance (ESG) investing have developed disclosures in recent years. For example, the Task Force on Climate-related Financial Disclosures (TCFD) has produced guidelines for use by firms and investors.

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But the SEC announcement signifies that the federal securities regulator could produce stricter standards that are enforceable and binding for public companies, combating a common criticism of sustainability disclosures.

Other international securities regulators are proposing mandatory climate disclosures for asset managers and other firms.

The SEC is making climate risk a priority under the Biden administration, which is reversing the policies of the Trump presidency. The US, for instance, has rejoined the Paris climate accords. Earlier this month, the federal agency appointed a new senior policy adviser, Satyam Khanna, on climate and ESG issues.

“Disclosure standards are evolving quickly around the world by standard-setters, regulators, and the private sector,” read a comment from securities litigation attorney Thomas Gorman, a partner at Dorsey and Whitney. “As the primary regulator of public companies and investment advisers in the United States, it is time for the Securities and Exchange Commission to step up on this critical question.”

Other changes are coming to the SEC. President Joe Biden’s pick for SEC chair, Gary Gensler, is expected to take a stronger stance on climate change risk than his predecessors, assuming he is confirmed next month.