SEC member Allison Herren Lee has suggested the agency should help create standards for banks to release information about the climate-change risks associated with their decisions to finance companies and their activities.
In remarks earlier this month, Lee noted the growing consensus that climate change may present a systemic risk to financial markets. There is a need for complete, accurate and reliable information in order to assess that risk, she said, starting with public company disclosure and financial firm reporting.
‘Investors also need this information so they can protect their investments and drive capital toward meeting their goals of a sustainable economy,’ Lee added. ‘The bottom line is that businesses now actively compete for capital based on ESG performance, and that competition needs to be open, fair and transparent. This requires uniform, consistent and reliable disclosure.’
Non-governmental efforts have made significant progress, but a degree of regulatory involvement is now required to achieve standardization and comparability, she said. Specifically, she described a need for disclosure by banks and other institutions that finance companies on, for example, their carbon-producing activities, that fully reflects the risks and opportunities involved.
‘The SEC should work with market participants toward a disclosure regime specifically tailored to ensure that financial institutions produce standardized, comparable and reliable disclosure of their exposure to climate risks, including not just direct, but also indirect, greenhouse gas emissions associated with the financing they provide,’ Lee said.
‘There will be challenges in implementing the appropriate regulatory action as it relates to standardized disclosures. But that cannot deter us from our work.’
Beyond that, Lee argued that standardized disclosure from companies on ESG matters would help lead to clearer and more consistent disclosure from ESG-focused funds about how they use issuers’ information to inform their investment choices. In addition, she said: ‘[T]he SEC might also consider rules that would require advisers to maintain and implement policies and procedures governing their approach to ESG investment.
‘This is an all-hands-on-deck effort. We need to solicit engagement from all market participants, leverage the work that has already been done by [the Task Force on Climate-related Financial Disclosures] and others, and move forward with considered, informed rule-making and other initiatives in this space.’
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
