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    SEC Seeks Input on Climate Disclosures, Sets Out ESG Approach

    March 15, 2021

    In a recent statement from the acting SEC chair, public input is being requested on climate change disclosures, with the aim to inform the policy in this area. SEC is requesting inputs on the existing rules and guidance as they apply to climate change disclosures and on whether and how these rules should be modified. Public input can include comments on the existing disclosure requirements in Regulation S-K and Regulation S-X (or, for foreign private issuers, Form 20-F), potential new SEC disclosure requirements, and potential new disclosure frameworks that SEC might adopt or incorporate in its disclosure rules. The aim is to facilitate the disclosure of consistent, comparable, and reliable information on climate change. The request for comments presents several questions for consideration by commenters, with the comment period being open for 90 days from the date of this statement.

    Additionally, while speaking at an event, the SEC Acting Chair Allison Herren Lee discussed the rationale for increased focus on climate risk and ESG factors and outlined the initiatives in the works at SEC. Ms. Lee said that SEC has begun to take critical steps toward a comprehensive ESG disclosure framework aimed at producing the consistent, comparable, and reliable data that investors need. The key issues to be explored via the recent request for input involve identifying the data and metrics that are most useful and cut across industries, the extent of the industry-specific approach, the lessons to be learned from existing voluntary frameworks, and how to devise a climate disclosure regime that is sufficiently flexible to keep up with the latest market and scientific developments. Another key issue to be addressed is how to address the significant gap with respect to disclosures presented by the increasingly consequential private markets. 

    The SEC Acting Chair said that, beyond climate, a broader array of ESG disclosure issues should be also considered. Progress must be made on standardized ESG disclosure too, which means working toward a comprehensive ESG disclosure framework. In the near term, the work should also include considering where SEC can advance initiatives on a standalone basis now, such as offering guidance on human capital disclosure to encourage the reporting of specific metrics like workforce diversity and considering more specific guidance or rulemaking on board diversity. Ms. Lee also notes that, two weeks ago, SEC announced the formation of the first-ever Climate and ESG Task Force within the Division of Enforcement. The Task Force will work to proactively detect climate and ESG-related misconduct, including identifying any material gaps or misstatements in issuers’ disclosure of climate risks under the existing rules and analyzing disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.

    Finally, she emphasized and discussed the importance of international collaboration and expressed support IOSCO’s recent statement regarding the creation of a Sustainability Standards Board. She noted that the establishment of a Sustainability Standard Board represents a promising approach toward the development of an international baseline for sustainability reporting, on which individual jurisdictions could build consistent with their own unique consideration. According to her, this also raises the question of a similar standard-setter domestically. One of the most challenging questions for SEC is how to devise a climate and ESG disclosure framework that is flexible and can efficiently evolve as needed. One potential path that should be considered is the development of a dedicated standard-setter for ESG (similar to FASB) under SEC oversight to devise an ESG reporting framework that would complement our financial reporting framework.


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    Comment Due Date: June 13, 2021

    Keywords: Americas, US, Securities, Climate Change Risk, Disclosures, ESG, Reporting, Sustainability Standards Board, SEC

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