SEC chair sets wheels in motion for mandatory climate risk disclosures

World’s largest equity market steps closer to unlocking environmental company data

July 30, 2021

The chair of the US Securities & Exchange Commission (SEC) has asked staff to develop a mandatory climate risk disclosure rule for listed companies.

Speaking on a webinar earlier this week, Gary Gensler said investors increasingly want to understand the climate risks of companies in which they have already invested or are planning to.

The SEC chair said it was the job of the commission to step in and make changes where there was an appetite for it.

“Large and small investors, representing literally tens of trillions of dollars, are looking for this information to determine whether to invest, sell or make a voting decision one way or another,” he said.

“Investors are looking for consistent, comparable and decision-useful disclosures so they can put their money in companies that fit their needs.

“I have asked SEC staff to develop a mandatory climate risk disclosure rule proposal for the commission’s consideration by the end of the year.”

In response to an SEC statement on climate disclosures in March, he said the commission received 550 unique comment letters, with three of four responses supporting mandatory climate disclosure rules.

The decision to look into making climate risk disclosures mandatory is a far cry from the Trump-era, anti-ESG rhetoric, which saw the US formally withdraw from the Paris Agreement for fear it would “undermine” the US economy.

Gensler said mandatory disclosures should be consistent and comparable, and filed in the form 10-K, alongside other information investors use to make their investment decisions.

He said the disclosures should also be “decision-useful”, meaning, “has sufficient detail so investors can gain helpful information – it’s not simply generic text.”

The disclosures should also feature a variety of qualitative and quantitative information about climate risk, he said. This would include how the company’s leadership manages climate-related risks and opportunities, and metrics related to greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals.

In addition, the SEC chair said investors should be able to “see what’s under the hood” of funds marketing themselves as “green”, “sustainable” and “low-carbon”.

As such, he has directed staff to consider recommendations about whether fund managers should disclose the criteria and underlying data they use to come to such a conclusion.