SEC Acting Chair Directs Study of Climate Change

Acting Chair Allison Herren Lee directed the staff of the Division of Corporation Finance to “enhance its focus on climate-related disclosure in public company filings.” Presumably this directive is to focus on updating the Commission’s only existing disclosure requirements regarding climate change. Those were, as the Acting Chair stated, passed in 2010 (here).

The directive is an important step. As a leading setter of disclosure standards, it is critical that the SEC update its requirements which the CFTC labeled ineffective last year in its report on the impact of climate change. As the Acting Chair stated “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.”

Last year when the agency updated key portions of Regulation S-K which governs the applicable disclosure requirements, both Ms. Lee and Commissioner Crenshaw decried the failure to update the Commission’s decade old standards. Despite enacting amendments to Regulation S-K, there was no mention of climate change in the new provisions. Indeed, none of the rule making initiatives launched last year or in the last several years have addressed the critical issue of climate change. Yet securities and other regulators around the world are moving forward with new standards that will require business enterprises and investment advisers to disclosure the climate information they use when making critical business and investment decisions. Ashley Asher, Chair of the International Organization of Securities Regulator, made this point clear in a recent speech discussed in an article posted on Monday of this week.

In undertaking its task, the Division of Corporation Finance need not wade back a decade to 2010. In 2016 the Commission published a Concept Release centered on the question of climate change. It posed questions regarding sustainability reporting. Although the agency did not follow-up with rule proposals, the comments and information obtained should afford the Commission a base from which to move forward. In view of that information, and Mr. Asher’s analysis of trends among regulators, there should be little doubt that executives are analyzing the impact of climate on business and investments. Given the importance of the issue, and the long-stated goal of MD&A to put the investor in the seat of the corporate executive, it is time that the Commission required that current climate information be disclosed to investors.

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