Mandatory Climate Risk Disclosures: SEC Chair Gensler’s Remarks

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[author: Melissa Pfeuffer]

Yesterday, Securities and Exchange Commission Chair Gary Gensler spoke at the “Climate and Global Financial Markets” webinar, hosted by the Principles for Responsible Investment (PRI), the UN-supported network of investors—focusing his remarks on: “So, what does the SEC have to do with climate?” Giving a timely analogy related to the Olympics, the Chair explained that if sports never changed over the years and we were forced only to ever view the first Olympic games of 1896, it would be a poor reflection of where we are today. Comparing investors to sports fans, he said they each speak up when they want to see something different. And so, Chair Gensler responded to his own question: “When it comes to climate risk disclosures, investors are raising their hands and asking regulators for more.”

Over 550 response letters were submitted to SEC Staff after then Acting Chair (now Commissioner) Lee’s public statement on climate disclosure (see our related blog post). Three out of four response letters show support for mandatory climate disclosures. Investors seek “consistent, comparable, and decision-useful disclosures,” said the Chair. Their desire to understand the climate related risks of companies whose stocks they own or may consider investing in is “overwhelming.” “Over the decades,” Chair Gensler noted, “there’s been debate about disclosure on things that, today, we consider pretty essential for shareholders.”

Chair Gensler believes disclosure requirements are necessary to ensure consistency and comparability. Chair Gensler stated that he has asked SEC Staff to recommend for proposal by the SEC mandatory climate risk disclosure requirements by the end of 2021. Specifically, SEC Staff is to take the following into consideration:

  • Whether the disclosures should be included in a company’s Form 10-K
  • Which qualitative (i.e., leadership management for climate-related risks) and quantitative (i.e., greenhouse gas emissions metrics) information about climate risk investors currently rely on, or believe would help, in making investment decisions
  • Whether there should be certain metrics disclosed for certain industries (i.e., transportation)
  • Whether companies should provide scenario analyses on how they adapt to potential physical, legal, market, and economic changes in the future (i.e., physical risks associated with climate change)
  • Which data/metrics companies use to inform investors about how they are meeting jurisdiction-specific regulatory or economic requirements
  • Whether fund managers should disclose the criteria and underlying data they use when labeling funds as “green” or “sustainable”

See the Chair’s complete remarks here.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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