U.S. Climate Finance Summit: Regulators Call for ESG Disclosures; Investors Demand Them

Proskauer - Corporate Defense and Disputes

Proskauer - Corporate Defense and Disputes

On February 18, 2021, the Institute of International Finance (“IFF”) hosted the U.S. Climate Finance Summit, at which both John Coates, Acting Director of the SEC’s Division of Corporation Finance, and Federal Reserve Governor Lael Brainard made statements in favor of companies providing fulsome ESG disclosures.  These pronouncements underscore the Summit’s larger goal of supporting a “pro-growth, pro-markets transition to a sustainable, low-carbon economy.” 

Acting Director Coates said that the SEC “should help lead” the creation of a disclosure system for ESG issues for corporations.  He noted that rigid, specific disclosures aren’t necessarily the answer as they can easily become out-of-date.  Nevertheless, Coates recognized that companies are already reacting to increasing shareholder interest for ESG information by issuing various sustainability reports organized by private groups.  Indeed, he commented that, “to some extent what has traditionally been voluntary is becoming less voluntary, not through law but because of investor demand.”

Governor Brainard also acknowledged that “[c]urrent voluntary disclosure practices are an important first step,” but are “prone to variable quality, incompleteness, and a lack of actionable data.”  She endorsed ultimately “moving toward standardized, reliable, and mandatory disclosures” related to climate risks.

Accompanying the Climate Finance Summit, IIF and 10 other financial services trade associations published “Principles for a U.S. Transition to a Sustainable Low-Carbon Economy,” a set of mutually-agreed-to climate finance principles, which will no doubt serve instructive to companies moving forward in the ESG space.

Importantly, only a month into the Biden administration, regulatory officials are publicly calling for heightened ESG disclosures:  just last week, Acting SEC Chair Allison Herren Lee directed the Division of Corporate Finance to enhance its focus on ESG disclosures in public company filings.  Still, as evidenced from Coates’ and Brainard’s statements, the real impetus for such disclosures may come from investors, as opposed to the regulators themselves.

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Special thanks to our litigation paralegal, Emma Dillon for her contributions to the post.

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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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