When Will We Know if the SEC Is Serious About Climate Change?

Could the U.S. Securities and Exchange Commission finally be getting serious about the financial risks of climate change? The agency has been making moves in that direction, but to some extent it feels like déjà vu all over again.

Activists, investors and business leaders have long been calling for U.S. companies to report more thoroughly and consistently on the climate-related risks they face. The idea is that the information is crucial to assessing a company’s value: If, for example, it relies too heavily on fossil fuels, has physical assets that are exposed to flooding, or has an opportunity to profit from a shift to renewable energy, investors need to know. Proper disclosure would help the market avoid unpleasant surprises and reward companies for acting responsibly.

Over the past month, the SEC has been signaling vigorously that it hears the demands. Evan as the agency has grappled with issues ranging from SPAC mania and social-media-driven hyper-trading, its commissioners and staff have found time to feature climate change on the SEC home page, deliver speeches on the subject and solicit public comment on how corporate disclosures can better inform investors.

Yet I can’t shake the sense that I’ve seen this movie before. Back in 2010, the SEC put out a 29-page “interpretive guidance” on how publicly traded companies should disclose climate-related risks. Although some companies improved aspects of their filings, nobody who follows the space — often known as environmental, social and governance, or ESG — can point to any really significant changes. Most notably, the SEC took no major enforcement actions against companies for failing to provide adequate disclosure. 

That’s pretty surprising, given that the SEC was under Democratic control through 2016. Less surprising is that Jay Clayton, the SEC’s Chairman under President Trump, deprioritized climate-related issues. During the Trump years, the SEC was just one of many governmental agencies that eliminated any reference to climate change from its public-facing websites. 

The zeitgeist is different now. There’s much greater recognition that climate change is a systemic threat that affects a wide range of businesses. Still, the SEC’s four current commissioners have very different views on what, if anything, needs to be done. On Feb. 24, when Acting Chair Allison Herren Lee directed the Division of Corporation Finance to renew its focus on climate-related issues, she promised updates to the 2010 guidance. A week later, Commissioners Hester M. Peirce and Elad Roisman questioned whether what they called “this enhanced focus on climate-related issues” represented “a change from current Commission practices or a continuation of the status quo with a new public relations twist.”

Peirce went further in a subsequent speech, saying that a broad ESG disclosure mandate would require “tossing” the SEC’s concept of relevant information — of “materiality” — “in favor of a more malleable new edition.” She warned against embarking “on a program to write standards for a set of issues nobody can define. They are not akin to accounting standards, which serve a clear, time-tested, universally understood objective.”

For publicly traded companies caught in the crosshairs, this could prove confusing. In a March 4 memo, attorneys at Gibson Dunn warned that some companies might avoid reporting voluntarily on their ESG risks, fearing “potential SEC enforcement actions based on ‘emerging disclosure gaps.’”

Perhaps when the full Senate finally approves Gary Gensler as the SEC’s new chairman, he will help break the stalemate. For now, the squabbling over the right way for the SEC to approach climate change will probably persist, and possibly get worse.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

©2021 Bloomberg L.P.

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