The United States Securities and Exchange Commission has decided to take a different approach to climate risk disclosures than its counterparts in Europe. Instead of targeting investment managers, the SEC focuses on the companies they invest in and the executives who run them.
SEC Chairman Gary Gensler is expected to come up with a series of new disclosure requirements for companies by the end of 2021, said Sonia Barros, partner at law firm Sidley Austin LLP and veteran of the Division of Corporation SEC Finance, which examines corporate disclosures. .
“It all starts at the level of the issuing companies,” Barros said. Gensler “will want to do something now rather than wait for the perfect moment,” as investors are already demanding more details from companies, she said.
Gensler gave an overview of the SEC’s deliberations in July, according to Barros. Here is what she sees as likely elements of climate-related SEC reforms:
Consistent and comparable information that is mandatory and “useful for decision-making” for investors.
A possible requirement that these details be formally included in the Form 10-K securities filings.
Qualitative information, such as how business leaders manage climate-related risks and opportunities and how these feed into business strategy.
Quantitative disclosures, such as measures related to greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals. These could include:
Scope 1 emissions (produced directly by a company).
Scope 2 emissions (linked to the purchase of electricity, steam, heat or cold).
While less likely, the regulator is considering disclosure rules on Scope 3 emissions (produced by a company’s supply chain and customers).
Barros added that the SEC is also likely to establish requirements for industry-specific measures, including what-if analyzes of how a company might adapt to a range of physical, legal, business and changes. economic.
These would include the physical risks associated with climate change as well as transition risks associated with a company’s stated climate commitments, or legal requirements in the jurisdictions in which it operates, Barros said.
And speaking of commitments, she said the SEC would likely like more transparency on:
Information supporting forward-looking commitments, such as:
“Net zero” commitments or other climate commitments or commitments required by the jurisdictions in which the companies operate.
The SEC also examines what data or metrics companies might use to inform investors about how they are meeting those commitments.
Meanwhile, to tackle greenwashing, the SEC has established a 22-person Climate and ESG task force to research major inaccuracies and gaps in climate risk information under the rules. current. This increased focus will likely result in additional disclosure proposals for the fund management industry in the spring of next year, Barros said.
“Europe is definitely moving more aggressively on this front than the United States,” she said. Based on Gensler’s comments, she said, the SEC will only focus on what is appropriate for the local US market.
If Gensler’s testimony this week before the Senate Banking Committee is any sign, there is no doubt that he plans to take a deep look at the financial industry’s allegations.
The SEC has “seen a growing number of funds branding themselves as ‘green’, ‘sustainable’, ‘low carbon’ and so on. Gensler said Tuesday. “I asked staff to consider ways to determine what information is behind these claims and how we can ensure that the public have the information they need to understand their investment choices among these types of funds.
Sustainable finance at a glance
- Maersk joins Warren Buffett to invest in a promising green fuel startup.
- Harvard University has said its funds will no longer invest in fossil fuels.
- Inequality has cost the United States nearly $ 23 trillion since 1990.
- Selling green bonds has never been easier or cheaper in Europe.
- Climate activists had their worst year on record in 2020.
Top photo: The headquarters of the United States Securities and Exchange Commission is in Washington, DC, United States Photographer: Andrew Harrer / Bloomberg
Copyright 2021 Bloomberg.
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