SEC to focus on companies rather than investment firms in climate disclosure

The US Securities and Exchange Commission has decided to take a different approach than its European counterparts to climate risk disclosure. Instead of targeting investment managers, the SEC focuses on companies in which they invest– and the executives who direct them.

SEC Chairman Gary Gensler is expected to propose a series of new corporate disclosure requirements by the end of 2021, says Sonia Barroslaw firm partner Sidley Austin LLP and a veteran of the SEC’s Division of Corporation Finance, which reviews corporate disclosures.

“It all starts at the corporate issuer level,” Barros said. Gensler “will want to do something now rather than wait for the Perfect moment” since investors are already asking companies for more details, she said.

people provided an overview in SEC deliberations in July, according to Barros. Here’s what she sees as likely components of the SEC’s climate-related reforms:

Consistent and comparable information that is mandatory and “ useful for decisionfor investors.

A possible requirement that these details be formally included in Form 10-K securities filings.

Qualitative insights, such as how business leaders manage climate-related risks and opportunities and how these feed into business strategy.

Quantitative information, such as greenhouse gas indicators 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 (associated with the purchase of electricity, steam, heat or cold).

Although 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 metricsincluding scenario analyzes of how a business might adapt to a range of possible physical, legal, business and economic changes.

These would include 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 want more transparency regarding:

Information in support of forward-looking commitments, such as:

“Net-zero” or other commitments climate commitments or covenants required by the jurisdictions in which the companies operate.

The SEC is also considering what data or metrics companies might use to inform investors about how they are meeting those commitments.

Meanwhile, to combat greenwashing, the SEC set up the 22-person Climate and ESG Task Force to seek out material inaccuracies and gaps in climate risk disclosures under the rules. current. This increased concentration will likely result in additional disclosure proposals for the fund management industry in the spring of next year, Barros said.

“Europe is definitely advancing on this front more aggressively 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 conduct a thorough review of financial industry complaints.

The SEC has “seen an increasing number of funds marketing themselves as ‘green’, ‘sustainable’, ‘low carbon’ etc. said Gensler on Tuesday. “I have asked staff to consider ways to determine what information is behind these claims, and how we can ensure that the public has the information they need to understand their investment choices among these types of funds. .”

Sustainable finance in a nutshell

Warren Buffett Photographer: Bloomberg
  • Maersk joins Warren Buffett to invest in promising startup green fuel.
  • Harvard University says 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 cheap in europe.
  • Climate activists had their worst year on record in 2020.

Top photo: The headquarters of the United States Securities and Exchange Commission stands in Washington, DC, USA Photographer: Andrew Harrer/Bloomberg

Copyright 2022 Bloomberg.

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