By Natalie DeCoste
Under direction from new chairman Gary Gensler, the Securities and Exchange Commission (SEC) is preparing to change its approach to the disclosers required from companies about how they respond to threats linked to climate change.
U.S. investor groups pressured the SEC and Gensler to change the SEC’s approach to environmental responsibility and mandate more corporate disclosures from public companies on climate change and other environmental, social, and governance (ESG) issues.
Currently, the SEC has broad authority to require disclosures by companies selling securities. The agency’s authority becomes less clear regarding the disclosure of specific information about climate change. Information about ESG has a less clear impact on every company’s bottom line, making it likely that this potential new rule will become a pressing issue to those lobbying in Washington.
Beyond the SEC’s authority to enact mandatory disclosures, other questions remain about what measurements are necessary to help investors gauge a company’s financial prospects and how to establish these requirements so they are flexible enough to generate specific information about corporate risks.
Gensler signaled before he was confirmed that the environment and ESG disclosures would be issues he would take up if he became head of the SEC.
“Increasingly, investors really want to see – tens of trillion of dollars in assets behind it – climate risk disclosure. Issuers would benefit from such guidance. So, I think through good economic analysis, working with the staff, putting out to the public to get public feedback that is something the commission, if I’m confirmed, would work on,” Gensler said during his confirmation.
President Joe Biden plans to meet Monday with top financial regulators to discuss the issue, and the SEC has sought some public input about the new rule.
“It’s a generational project unlike anything the SEC has ever undertaken. It requires a great deal of expertise at the staff level and an enormous amount of market outreach,” said Robert Jackson Jr., a former SEC commissioner.
Seven tech companies responded to Gensler and the SEC’s request for public input, urging the SEC to implement the new disclosure requirements. The seven companies who joined the letter are Google parent Alphabet, Amazon, Autodesk, eBay, Facebook, Intel, and Salesforce.
“We recognize that climate change is an urgent global challenge that demands collective action. We are committed to taking bold steps within our operations, supply chain, products, technology and public engagement. We believe that climate disclosures are critical to ensure that companies follow through on stated climate commitments and to track collective progress towards addressing global warming and building a prosperous, resilient zero-carbon economy,” read the letter.
Microsoft also joined the effort to ensure the disclosures in its own letter to Gensler and the SEC. Like the seven companies who submitted a joint letter, Microsoft touted its contributions and commitment to environmental sustainability and clean energy.
On the other side of the debate are energy and transportation companies, who have told the SEC that climate disclosures could be misunderstood by investors who lack experience with the data. They warn investors may put too much weight on one aspect of the data, such as a company’s total greenhouse-gas emissions.
Some Republicans have also voiced opposition to the SEC’s proposed rule. They cited the doubts over the relevance environment-related disclosures have to providing investors with information and the appropriateness of using the SEC to enact social change.
“The securities laws are not the appropriate vehicle to regulate climate change nor to correct racial injustice or intimidate companies regarding political spending. That is why we have environmental, civil rights, and political spending laws,” said Sen. Patrick Toomey (R-PA) during opening statements at Gensler’s confirmation hearing.