In March 15 remarks at the Center for American Progress, a Washington, D.C. think tank, titled A Climate for Change: Meeting Investor Demand for Climate and ESG Information at the SEC, Acting Securities and Exchange Commission (SEC) Chair Allison Lee announced that the SEC will commence a number of new initiatives to address “…the risks and opportunities that climate and ESG pose for investors, our financial system, and our economy.” Indeed, the Acting Chair announced that some of these initiatives have already been launched, stating that the SEC has already “begun to take critical steps toward a comprehensive ESG disclosure framework aimed at producing the consistent, comparable, and reliable data that investors need.”
Simultaneously, the SEC issued a Request for Information on Climate Change Disclosures (Climate Change Disclosures RFI) with a 90-day comment window. As further described below, the Climate Change Disclosures RFI covers a broad range of issues and legal considerations relevant to possible mandatory SEC climate change disclosure requirements.
The timing of the Acting Chair’s announcement of sweeping SEC program changes related to ESG and climate change matters is notable, taking place during the Senate’s consideration of the Biden Administration’s nominee to chair the Commission, Gary Gensler. Gensler’s nomination was voted out of the Senate Banking Committee on March 10 and is currently awaiting Senate floor consideration. With the release of the Climate Change Disclosures RFI, Acting Chair Lee announced that she has launched several related policy initiatives, including:
- Directing that SEC staff move forward to finalize the SEC’s 2016 Universal Proxy Rule Proposal;
- Requesting that the Division of Corporation Finance consider revising the recent Shareholder Proposal Rule, to “…increase the number of [shareholder] proposals on the ballot that are well designed for shareholder deliberation and votes, and reduce the number that are not”;
- Requesting that the SEC’s Division of Investment Management reconsider its 2019 Guidance Regarding Proxy Voting Responsibilities of Investment Advisers (which she views as deterring voting in some circumstances) and consider updating the disclosure regime for fund proxy voting decisions (Form N-PX), to enhance transparency; and
- Requesting an SEC staff evaluation of the feasibility of creating a dedicated domestic ESG standard setter, similar to the Sustainability Standards Board now being established under the auspices of the International Financial Reporting Standards (IFRS) Foundation.
As noted above, the SEC’s Climate Change Disclosures RFI covers an extensive range of topics related to possible SEC mandated climate and ESG disclosure requirements. Below are some of the questions that it poses for public consideration and comment:
- Exchange Act Considerations. Should climate change disclosures be included in SEC annual reports, other periodic filings, or otherwise be furnished?
- Climate Change Metrics. What climate risk information can be quantified and measured and how do market participants currently use this information?
- Private Ordering. What are the advantages and disadvantages of permitting market participants to develop disclosure standards by private ordering, mutually agreed by them?
- Existing Frameworks. What are the advantages and disadvantages of the existing NGO ESG frameworks, such as those developed by the Task Force on Climate-Related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB), and the Climate Disclosure Standards Board (CDSB)?
- Modification and Amendment. How should climate disclosure requirements be modified over time?
- Disclosure of Issuer Processes and Controls. Should issuers be required to disclose their oversight of climate-related disclosures?
- Global Frameworks. What are pros and cons of a global, as opposed to national, disclosure standard?
- Enforcement. How should climate disclosures under any such standards be enforced and/or assessed?
- Assurance of Non-Financial Reporting . Should ESG disclosures be subject to audit, or another form of assurance? If so, who should perform this task? Who should oversee these professionals?
- Comply or Explain Regimes. What are the advantages and disadvantages of a “comply or explain” framework for climate change, which is common in EU member states?
- Private Companies. How should the SEC address private companies’ climate disclosures, such as through exempt offerings, or its oversight of certain investment advisers and funds?
- Comprehensive ESG Disclosure Frameworks. Should climate-related disclosure requirements be one component of a broader mandatory SEC ESG disclosure framework?
With respect to the last question, Acting Chair Lee made her own views clear, stating that she envisions climate change disclosures will be part of an eventual comprehensive SEC ESG disclosure regime. She suggested that such a regime would ultimately include enhanced human capital disclosure requirements and rules with respect to political spending disclosure, a topic that she said that she views as being “inextricably linked to ESG issues.”
We look forward to hearing the perspectives of our Nareit members on these issues. Please do not hesitate to get in touch with Nareit Senior Vice President, Regulatory Affairs and Deputy General Counsel, Victoria P. Rostow, with any questions, or comments, about these or related matters