SEC’s Lee seeks global action on climate disclosure

SEC commissioner Allison Herren Lee has called for organizations around the world to work together in determining how companies report on the risks of the climate crisis.

‘Climate is, of course, a global challenge that demands a global solution,’ Lee said earlier this week. ‘That’s why we must seek ways to collaborate across jurisdictional boundaries to promote consistency in climate-related disclosure.’ She described as an ‘important and promising international effort’ the IFRS Foundation’s work on an International Sustainability Standards Board (ISSB).

‘The ISSB can hopefully provide an international baseline for sustainability reporting on which individual jurisdictions can build,’ Lee said. ‘Such an approach would balance the need for consistency across borders with the particular needs of individual jurisdictions. The SEC, through [the International Organization of Securities Commissions] and other international work streams, is engaged in efforts to assist in this work, and I look forward to continued progress on that front.’

Lee described a need for consistent, comparable and reliable climate data in order to correctly price risk and allocate capital. But she added that although markets are key to tackling the climate issues, data and transparency on their own cannot enable capital markets to fully deal with the climate crisis.

‘That is in part why numerous market participants – trade groups, bankers, policy-makers, Nobel prize-winning economists and others – are of the view that putting a price on carbon through, for example, a carbon tax or other methods of requiring the internalization of climate externalities, is key to this effort,’ she said.

‘Nevertheless, better data can accomplish a great deal. After all, it’s not just investors that will benefit from the information. All policy-making should flow from reliable data as well… Not only will enhanced climate disclosure inform markets, [but] it can [also] more broadly inform the wider spectrum of climate policy-making – policy-making that deserves incisive, informed, and – importantly – swift attention.’

Her comments come as the SEC is widely expected to propose new disclosure requirements related to climate change before the end of 2021 or in early 2022. Agency chair Gary Gensler in July outlined some rule-making considerations such as requirements related to the location of the new climate change disclosure, new qualitative disclosure requirements, new quantitative disclosure requirements – particularly in light of the desire that company disclosures be comparable – industry-specific disclosure requirements and scenario analysis.

The SEC’s division of corporation finance in September also released a sample letter outlining comments it may make to companies regarding their climate-related disclosures, or the lack thereof.