SEC reviewing decade-old climate disclosure rules

Original rules on climate-related disclosure were originally published in 2010

The Securities and Exchange Commission (SEC) is reviewing its climate-related disclosure rules for companies, which have not been updated since 2010.

In a statement, acting chair Allison Herren Lee said the regulator’s staff would be assessing how extensively companies were fulfilling these obligations and where the framework needed to be enhanced.

The guidance from 2010 suggests companies disclose how their businesses could be impacted by climate change through severe weather, decarbonisation, and environmental regulation. These were issued during the tenure of chair Mary Schapiro, who is now secretariat for the Task Force on Climate-Related Financial Disclosures.

As it stands, few listed companies in the US disclose much about climate change, or where they are open to climate risk in their filings with the SEC.

It is understood the SEC is exploring how these disclosures can be standardised, which would make it easier for investors to assess companies and their climate change merits. Interpretive clauses will be revamped to provide clearer instruction for companies and the regulator is reportedly planning to look to other reporting frameworks, such as in the UK and EU, and gauge what lessons can be taken from these.

Herren Lee has been a previous vocal critic of the regulator’s lack of action on this subject and in January 2020 made a public statement calling for the “elephant in the room” of climate change disclosures to be modernised.

Now, in the role of acting chair and with the backing of the president, she is eager to push ahead on this area of reform.

Announcing the review, 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,” she 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.”

In January, Herren Lee was appointed as acting chair by President Joe Biden in a move which signified the new administration’s stance on climate change.

Biden has campaigned on getting the US to net zero emissions by 2050 and he picked Herren Lee partly due to her previous vocal support for ESG disclosures during her time as an SEC commissioner.

Since her promotion, Herren Lee has already overseen the creation of a new role dedicated to the issue of climate change. In February, she appointed Satyam Khanna as senior policy adviser for climate change and ESG at the SEC. In this role, Khanna is responsible for advising the regulator on ESG matters and advancing new initiatives across its offices and divisions.

This suggests a progressive change of direction at the SEC which came under criticism during the Trump administration due to its lack of work on corporate stewardship and climate change.

Last year, the SEC was criticised by investor groups after voting to adopt amendments many argued would frustrate shareholder activism.

Earlier in 2020, then-SEC chairman Jay Clayton (who was appointed by President Trump in 2017) received direct criticism from Herren Lee for failing to do more on climate disclosures. She attacked proposals the SEC had tabled at that time and publicly accused the regulator of being “conspicuously silent” on the wider issues of climate change.

Reform of the US’s framework for climate-related disclosures will be welcomed by many environmentally concerned investors.

On the day the reform was announced, the International Organisation of Securities Commissions (IOSCO) issued a press release calling for globally consistent, comparable, and reliable sustainability disclosure standards.

IOSCO is carrying out its own work in this field and is exploring the establishment of a multi-stakeholder consultative committee to establish consistent and coordinated standards for public companies.