April 19, 2021
Investors are increasingly concerned with how their investments are affected by the impacts of climate change and the role that companies they invest in play in the transition to a low-carbon economy. This concern has not gone unnoticed by regulators and financial institutions—including the Securities and Exchange Commission (SEC). On February 24, the SEC announced that it was “enhanc[ing] its focus on climate-related disclosure in public company filings.” Soon afterward, the Commission created an enforcement task force aiming to identify any gaps or misstatements in climate-related disclosures under existing rules. Most recently, on March 15, then-Acting Chair Allison Lee put out a request for public comment on how the SEC might change their requirements on climate change disclosures with 15 specific, detailed questions to guide discussion.
The Senate officially approved Gary Gensler as the new Chair of the SEC on April 14, by a vote of 53 to 45—largely split along partisan lines. Gensler, currently a professor of global economics and management at MIT, formerly headed the U.S. Commodity Futures Trading Commission (CFTC) and, before that, led the Mergers & Acquisitions team at Goldman Sachs.[1] Gensler’s confirmation as Chair makes SEC action to increase climate disclosure requirements more likely. During his confirmation hearing before the Senate in March, in response to a question from Sen. Sherrod Brown (D-OH) on whether he would push the Commission beyond its already increased focus on climate disclosure, Gensler noted that “issuers would benefit from such guidance.” This, along with his reputation as a “forceful regulator” from his time at the CFTC, suggests we will see an SEC quite proactive in the climate space.
While it’s increasingly clear that the SEC—like many other federal agencies—will take action on the climate, it is not yet clear what this action will look like. In the last couple months, a number of big public- and private-sector players in the financial sector have come out in opposition to explicit disclosure requirements. As one example, following the SEC’s call for public comment, West Virginia Attorney General Patrick Morrisey stated that “West Virginia will not permit the unconstitutional politicization of the Securities and Exchange Commission. If you choose to pursue this course, we will defeat it in court.” Still, with an SEC primed to act and a supportive Biden administration, this opposition may not be enough to stall a significant overhaul of disclosure requirements.
For more background on mandatory and voluntary climate disclosures, read our April 2021 primer, “Understanding U.S. Climate Risk Disclosures.”
[1] The U.S. CFTC has been increasingly focused on climate change as well. In September 2020, they released a comprehensive report in which they argued for increased climate action, including more robust climate disclosures. In addition, on March 17, 2021 they announced the creation of a new climate risk unit focused on the role of derivatives markets in the transition to a low-carbon economy.