What Should the SEC Require in Climate Change Disclosures?


What would you like to know

  • The agency received hundreds of responses to its call for papers on climate change disclosure rules.
  • Most of the comments, including those from major asset managers, appeared to be in favor of new disclosure requirements.
  • Morningstar suggested that the SEC also look at how fund companies approach carbon and climate risks.

The SEC has received hundreds of public comments in response to its request for input on how the commission can best regulate corporate climate change disclosures.

The most of comments appear to support disclosure of climate change risks for reporting companies, which, combined with the agency’s creation of a climate and ESG working group in its enforcement division, the priority of climate change disclosure in its reviews division and staff review of its 2010 climate change disclosure guidelines – positions the agency to adopt new climate change disclosure rules.

“I wouldn’t be shocked if the SEC came up with a rule this year… and had a final rule in 2022,” said Aron Szapiro, head of policy research at Morningstar. Litigation is expected to follow, so that a final rule will not be released until the end of 2022 or 2023, according to Szapiro, who added that even that time would be faster than normal.

Respondents to the SEC’s call for papers on new climate disclosure regulations include the world’s two largest asset managers, BlackRock and Vanguard, as well as another asset manager; business groups such as the Asset Management Group (AMG) of the Securities Industry and Financial Markets Association and the American Petroleum Institute; environmental groups, public policy groups; and research organizations like Morningstar.

Those who support a new SEC rule on climate change disclosure have agreed on many key things:

  • Materiality. Companies must disclose information about climate change considered important, which the SEC and the Supreme Court have defined as information that would cause a rational investor to change their investment decisions.
  • Principle-based disclosure. This gives companies the ability to disclose important climate-related factors rather than a ‘tick the box’ approach of simply disclosing required metrics and standard risk factors, ”according to SIFMA.
  • Greenhouse gas. Companies must disclose Scope 1 and Scope 2 emissions, which respectively cover a company’s direct emissions and indirect emissions from the production of purchased electricity, steam, heating and cooling consumed by a reporting company . Some respondents, like Calvert, who specializes in sustainable investing, would require disclosure of Scope 3 emissions, which are indirect emissions within a company’s value chain. T. Rowe Price supports such disclosure when it is material.
  • Annual disclosure climate-related documents, including companies’ annual 10-K filing with the SEC.
  • Explanation of quantitative metrics used by companies to measure their exposure to climate risk.
  • Alignment with current frameworks the principle of the Sustainability Accounting Standards Board (SASB) and the Climate-Related Financial Disclosures (TCFD).
  • Coordination and consistency with global disclosure frameworks. Morningstar favors universal minimum disclosure requirements that enable consistent benchmarking across industries and sectors managing climate risk.

other comments

In addition, some respondents, including Invesco and Calvert, favored disclosure of climate change risks as part of a broader disclosure framework that includes other environmental issues as well as social and governance factors.

BlackRock, T. Rowe Price and Invesco recommended that the SEC’s disclosure rule include private companies as well as public companies to avoid regulatory arbitrage. T. Rowe noted that the SEC already requires 10-K reports for private companies with more than $ 10 million in total assets and 2,000 registered shareholders or 500 shareholders who are not accredited.


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