Allison Herren Lee, acting chair of the Securities and Exchange Commission (SEC), has done more than hint that she thinks the SEC should create rules requiring mandatory disclosure of climate risk. Even before being appointed Chair in January, she forewarned the dangers of climate change to the financial system and was a trailblazing advocate for the SEC to assume a leadership role on sustainability. Now, Lee’s work has reached a crescendo. Yesterday, Lee announced the Commission is seeking comments from the public – including investors, registrants, and other market participants – for how to implement disclosure rules on climate change.
While the SEC’s current rules sometimes require disclosure of “climate change-related risks and opportunities,” such as under Regulation S-K, the SEC has not released official guidance on these issues since 2010. A decade later, both the demand for such information and the rate at which companies supply it has exponentially increased. Ensuring all these climate disclosures are standardized falls within the SEC’s purview. As Lee declared in a keynote speech before the Practising Law Institute, “At the SEC, we protect investors, facilitate capital formation, and maintain fair, orderly and efficient markets…To assess systemic risk, we need complete, accurate, and reliable information about those risks.”
In an effort to assess the best approach for the SEC to take on climate disclosure, Lee’s statement appeals to investors and other stakeholders in the market to provide comments and empirical data on current requirements and possible new requirements or frameworks. A list of 15 extensive questions for consideration will help guide these individuals as they prepare their responses over the next 90 days; some, for example, ask what kind of information can be quantified and should be shared. Responses can be submitted via either webform or email.
The SEC’s announcement could be the first step on the road to mandatory disclosure for climate: “Not all companies do or will disclose without a mandatory framework, raising the cost, or resulting in the misallocation, of capital,” Lee noted during a speech at the Center for American Progress yesterday. And as she pointed out in a New York Times op-ed last year, the lack of enforcement mechanism poses a problem that exists in stark contrast to other areas of oversight requiring intricately detailed responses: “There are no specific requirements, and without that clarity how can companies be sure what is expected of them? As of now, there is little for us to enforce.” It seems like that is about to change.