Why It Matters. Investors are demanding more information about how climate change is affecting the financial outlook of the companies they own or are considering investing in, and the reason is clear. The past several years have starkly illustrated the devastating consequences of unchecked climate change, as the failure to address climate change has led to an increase in hugely costly weather disasters, devasting and deadly wildfires, and other climate-change induced catastrophes. It has also become clear that it will take significant effort to curb greenhouse gas emissions sufficiently to avoid the worst impacts of climate change, with policymakers around the world committing to drastic reductions in greenhouse gas emissions. In other words, almost no business on Earth will be spared the impact of climate change, whether arising from threats to physical assets from more extreme weather and wildfires, from the transition to a carbonless economy, or both. The investors who own those companies have, for years, demanded enhanced climate-related disclosures to help them better make investment decisions, but the absence of a mandatory disclosure framework has left them with a patchwork of voluntary frameworks that may not produce meaningful, comparable disclosures.
What We Said. The SEC has broad statutory authority to mandate disclosures for the protection of investors and the public interest, and mandating climate disclosures falls well within that mandate. Nevertheless, some companies and their allies resistant to providing climate disclosures have vigorously insisted that the SEC lacks authority to mandate climate disclosures. This insistence is based on a misunderstanding about what the Proposal does. The Proposal does not mandate that companies take action to address or combat climate change or otherwise comply with any environmental goals. The Proposal simply requires that companies disclose information related to how they are addressing climate-related risks, to provide investors with information that is relevant to their investment decisions. As we detail in our letter, this is well within the SEC’s authority. Moreover, we urge the SEC to use its broad authority to mandate disclosures to close proposed loopholes related to indirect greenhouse gas emissions and independent verification of reported greenhouse gas emissions. If the SEC does this, a good proposal will become an even stronger final rule.
Bottom Line. Climate change will have an impact on virtually every company on Earth, which is why investors have recently begun demanding better disclosure of climate-related risk from the companies they own. The SEC, tasked with protecting investors and the public interest, has clear authority to mandate these disclosures, and can and should go even further to ensure that investors are provided with all of the climate risk information they need to make informed investment decisions.
Read our full Comment Letter here or click the button below.