SEC to update climate-related risk disclosure requirements

The Securities and Exchange Commission (SEC) announced Wednesday that it will update its guidelines on how publicly traded companies should disclose climate change-related risks to investors.

Acting SEC Chair Allison Herren Lee said in a Wednesday statement that the commission will review how companies were complying with its 2010 guidelines, discuss climate-related disclosures with firms and analyze how the stock market is handling climate risks. The SEC will then update those guidelines, likely expanding 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.

“Ensuring compliance with the rules on the books and updating existing guidance are immediate steps the agency can take on the path to developing a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures.”

Lee’s announcement is the SEC’s first step toward expanding the scope of information publicly traded companies are expected to reveal about their vulnerability to climate change. The SEC was widely expected to boost its emphasis on climate-related disclosures after President Biden’s election, which gave Democrats a chance to establish a majority at the independent agency.

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.

While the SEC is unlikely to start any heavy regulatory lifting until after Gensler is confirmed, the agency is expected to build off of its 2010 guidelines soon after Biden’s pick takes the helm.

The SEC in 2010 said that companies should disclose how climate-related legislation and regulation, international accords, indirect effects of regulation and business trends and physical damage could impact their finances. Democrats and environmentalists have long pushed the SEC to expand those disclosures and push harder on companies to comply with them.

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 said her department will play a significant role in the battle against climate change, which she called “an existential threat.” She is expected to bring in Sarah Bloom Raskin, who served as deputy Treasury secretary during the Obama administration, to serve as the department’s climate czar and could use the Financial Stability Oversight Council to crackdown on climate-related financial risks.

The Federal Reserve, an independent agency, is also homing in on the risks climate change could pose to the banking system. The Fed joined a network of central banks and regulators last year committed to fighting climate change and recently created a committee to analyze the risks the financial system faces from global warming.

While Democrats and climate hawks have praised the Fed’s actions, it has received intense backlash from Republicans over concerns the central bank will try to stifle financing for oil and gas companies. They’ve also expressed objections to the prospect of climate-related stress tests for banks that could draw regulatory penalties or restrictions if failed.

Federal Reserve Chair Jerome Powell tried to dispel those concerns during a Wednesday appearance before a House panel, explaining that the Fed was just beginning to study 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 policy makers 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.”