In a Wednesday statement, the acting chair of the SEC, Allison Herren Lee said the commission plans to review how companies are complying with its 2010 guidelines, discuss climate-related disclosures with firms, and analyze how the stock market is handling climate risks.
It is likely the SEC will end up expanding the guidelines on how much information companies are expected to disclose about the risks climate change poses to their business.
“Now more than ever, investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future,” said Lee, a Democrat appointed by former President Trump, according to The Hill.
The SEC’s announcement comes just days after a new report was released by the Center for American Progress, a public policy research and advocacy organization in Washington, D.C. that presents a liberal viewpoint on economic and social issues.
In the report, released February 19, the SEC was called on to require that companies release their disclosures on climate-related risks. The report further says the SEC already has the existing tools needed to establish both the authority and the imperative to protect investors and the public by developing and enforcing a common set of disclosures.
The report focuses on four recommendations the SEC should address:
1. Enforce existing guidelines and rules for disclosure of climate-related risks.
2. Require specific public company climate-related disclosures and analysis, including disclosures of direct and indirect greenhouse gas emissions; require companies to disclose transition plans, targets, and sectoral adjustment strategies; and close the loopholes that allow larger companies to avoid public market transparency.
3. Devote special attention to the financial sector in order to capture the systemic and investor protection risks of climate as it relates to the financial system by requiring financial institutions to disclose the greenhouse gas emissions they finance and underwrite through their loans, insurance policies, and investment funds.
4. Take an all-of-agency approach to climate.
As usual, it will be an uphill fight
After President Joe Biden’s election, it was expected that the SEC would put more emphasis on climate-related disclosures, especially with Democrats getting a majority on the bipartisan commission.
The SEC is currently split between two Democratic commissioners and two Republicans—all appointed by Trump—with a seat vacated by former chairman Jay Clayton. Biden has nominated Gary Gensler, a Democrat, to fill Clayton’s spot and chair the commission.
Not much will be done until after Gensler is confirmed, but the SEC is expected to build off of its 2010 guidelines soon after Biden’s pick takes the helm.
The SEC’s announcement comes amid a push from the Biden administration to use the federal government’s power over the financial system to fight climate change. Treasury Secretary Janet Yellen has already indicated her department will play a significant role in the battle against climate change, calling it “an existential threat.”
Meanwhile, the Federal Reserve, an independent agency, is also homing in on the risks climate change could pose to the banking system. Folks may remember that last year, the FED joined with a number of central banks and regulators committed to fighting climate change and recently created a committee to analyze the risks the financial system faces from global warming.
The Federal Reserve’s move is already creating backlash with Republicans over concerns the central bank will try to stifle financing for oil and gas companies. They are also afraid some banking institutions could face penalties for not complying with climate-related regulations.
Federal Reserve Chair Jerome Powell tried to dispel those concerns during a Wednesday appearance before a House panel. He explained that the Fed was still in the early stages of a study on the impact climate change will have on the financial system.
“We’re really in the early stages of understanding this right now,” Powell told the House Financial Services Committee on Wednesday. “We are not climate policymakers here who can decide the way climate change will be addressed by the United States. We’re a regulatory agency that regulates a part of the economy.”
