Is the SEC is putting on pressure ?
- sivanlachman
- Sep 19, 2021
- 2 min read
In light of market demand whether current disclosures are adequate, The U.S. Securities and Exchange Commission (SEC) has decided to take a different tack on climate-risk disclosures than its counterparts in Europe. Instead of targeting investment managers, the SEC is focusing on the companies they invest in and the executives who run them. This is an advance on the 2010 disclosure rule, as information flow as increased significantly.
SEC is expected to propose a series of new disclosure requirements for companies by the end of 2021. The commission now states that companies should want to do something now rather than wait for the perfect moment. Especially as investors are already demanding more details from them, for example:
Consistent and comparable disclosures that are mandatory and “ decision-useful” for investors.
Qualitative disclosures, such as how company leaders manage climate-related risks and opportunities and how those feed into corporate strategy.
Quantitative metric disclosures, SEC focuses on metrics related to greenhouse gas emissions, financial impacts of climate change and progress towards climate-related goals. From scope 1 emissions (directly produced by a company) to scope 3 (emissions produced by a company’s supply chain and customers).
Climate action is promoted by the Biden administration which makes SEC focus on climate parameters understandable. Nevertheless, the SEC is also likely to lay out requirements for industry-specific metrics, including scenario analyses on how a business might adapt to a range of possible physical, legal, market and economic-related changes. The SEC is also likely to want more transparency when it comes to:
Disclosures supporting forward-looking commitments,
The SEC is also considering which data or metrics companies might use to inform investors about how they meet those commitments.
Meanwhile, to clamp down on greenwashing, the SEC has set up a Task Force to look for misstatements and material gaps in climate-risk disclosures. This increased focus will likely result in additional disclosure proposals for the fund-management industry in the spring of next year. Important note is that while realizing that Europe is moving forward more aggressively on this front than the U.S., the SEC will focus solely on what’s appropriate for the local U.S. market.
Taking into account SEC's position at the Senate Banking Committee, it is clear they are planning to bring significant scrutiny to financial industry claims. The SEC will determine ways of examining companies self-claims and information to ensure that the public has the information they need to understand their investment choices among these types of funds.
These changes have been implemented after a call for public comments issued March 2021, with remarks from Chevron to FedEx to Walmart and more.
How does this affect us? Walk the talk
Move quickly. As climate changes worsens, assets mispricing increases leading to a potential economic disaster in the US and globally.
Make claims and promises you can meet, including carbon emissions.
Implement an ESG policy that is realistic.
Management accountability is essential. This policy should be part of the annual review and compensation.
Do good.
Comments