The SEC is proposing to require public companies to disclosure material information about the climate-related risks they face. This is an important, appropriate, and timely step that will help investors evaluate the impact that climate change may have on the companies in which they seek to invest.
There is a broad scientific consensus that Earth’s climate is warming, that humans are a primary cause, and that unless addressed, the consequences will be devastating. In fact, there is widespread consensus that we are already seeing the consequences of climate change, as scientists have confidently concluded that recent increases in devastating wildfires and deadly and costly ecological and weather disasters have been fueled in large part by the warming climate. Moreover, achieving the drastic reduction in emissions that will be required will result in fundamental and significant changes to how humans live, move, and work, which will in turn result in fundamental changes to commerce, markets, and the economy.
Given the widespread and varied effects of climate change, and the significant and widespread efforts that will be required to combat it, there is no company that can plausibly claim it does not need to account for the risks posed by climate change. Every company will be subject to some form of climate risk, whether arising from threats to its physical infrastructure, threats to supply chains, population shifts, or changes in consumer preferences arising from decarbonization. However, although public companies in the U.S. are required to publicly disclose the material risks associated with investing in them, there is no specific requirement that companies disclose their climate-related risks, much less any requirement that such risks be standardized so that investors can make meaningful comparisons across companies. This is especially untenable given the significant investor demand for enhanced climate disclosures. To remedy this, the SEC is proposing to require that companies under its jurisdiction disclose in periodic reports (such as 10-Ks) their:
- Climate-related risks and their actual or likely material impacts on the company’s business, strategy, and outlook;
- The company’s governance of climate-related risks and relevant risk management processes;
- The company’s emissions of greenhouse gases (subject to assurances for certain larger companies);
- Certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements; and
- Information about climate-related targets and goals, and transition plans, if any.
The rule has triggered strong opposition from some in industry who claim that the SEC is involving itself in climate policy, something they claim is beyond the agency’s authority. But they are way off the mark, as the SEC’s proposed rule is at heart simply a requirement that public companies disclose material information to investors—something the agency has been doing under the securities laws for nearly 100 years.
Submit your comment letter in one of three ways:
Vanessa Countryman, Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-0609