The U.S. Securities and Exchange Commission (SEC) announced today that it will review its guidance and public company obligations for disclosures related to climate change risk, citing increased demand by investors for material, comprehensive information.
In a statement released by the SEC, Action Chair Allison Herren Lee said:
“Now more than ever, 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.”
Lee directed staff to enhance its focus on climate-related public company disclosures, aiming to assess compliance with the current guidance, initially issued in 2010, with a view to introducing updated climate disclosure rules.
Lee said:
“As part of its enhanced focus in this area, the staff will review the extent to which public companies address the topics identified in the 2010 guidance, assess compliance with disclosure obligations under the federal securities laws, engage with public companies on these issues, and absorb critical lessons on how the market is currently managing climate-related risks. The staff will use insights from this work to begin updating the 2010 guidance to take into account developments in the last decade.”
The announcement follows moves by government agencies and regulators globally towards enhancing climate disclosure requirements and, in some cases, creating mandatory reporting requirements. In November 2020, UK’s Chancellor of the Exchequer Rishi Sunak announced plans to make the UK the first country in the world to mandate economy wide disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD). European regulators have also recently signaled support for the creation of global sustainability reporting standards, and the European Commission is reviewing its owns non-financial reporting directive (NFRD) rules with an eye to enhancing climate and other sustainability-related disclosures.
Today’s announcement also marks another step for the U.S. in its significant ramp in focus on climate change, most dramatically signalled by the return of the country to the Paris Agreement by President Biden on his first day in office. Within the SEC, this was most recently manifested by the creation of a new senior role with responsibility for advising and overseeing on climate risk and ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. issues for the agency, appointing Satyam Khanna as Senior Policy Advisor for Climate and ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments..
Disclosure has become a key focus issue for investors looking to increasingly integrate climate and other sustainability issues in their investment processes, with a lack of consistent, comprehensive data repeatedly cited as the key barrier to sustainable investing.
In her statement, Lee said:
“Ensuring compliance with the rules on the books and updating existing guidance are immediate steps the agency can take on the path to developing a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures.”
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