Posted on Thursday, July 29, 2021

The Securities and Exchange Commission published Chair Gary Gensler’s remarks given during the Principles for Responsible Investment “Climate and Global Financial Markets” webinar. His remarks provide some insight into what we might expect from the climate disclosure rule proposal that the SEC has indicated they will be publishing in October. Highlights from the speech that may give us some insights into the draft rule:

In proposing their draft, I’ve asked staff to consider whether these disclosures should be filed in the Form 10-K, living alongside other information that investors use to make their investment decisions.

In addition to that consistency and comparability, investors benefit most when disclosures are “decision-useful.”… A decision-useful disclosure has sufficient detail so investors can gain helpful information — it’s not simply generic text. In appropriate circumstances, I believe such prescribed disclosure strengthens comparability.

I’ve asked staff to consider a variety of qualitative and quantitative information about climate risk that investors either currently rely on, or believe would help them make investment decisions going forward. Qualitative disclosures could answer key questions, such as how the company’s leadership manages climate-related risks and opportunities and how these factors feed into the company’s strategy. Quantitative disclosures could include metrics related to greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals…

I’ve also asked staff to consider whether there should be certain metrics for specific industries, such as banking, insurance, or transportation. Another question is whether companies might provide scenario analyses on how a business might adapt to the range of possible physical, legal, market, and economic changes that it might contend with in the future. That could mean the physical risks associated with climate change. It also could refer to transition risks associated with stated commitments by companies or requirements from jurisdictions…

Even if they haven’t made such statements themselves, companies often operate in jurisdictions that have made commitments, such as to the Paris Agreement, that could lead to regulatory or economic changes within those locations. I’ve asked staff to consider which data or metrics those companies might use to inform investors about how they are meeting those requirements.

Among other frameworks and standards, many commenters referred to the Task Force on Climate-related Financial Disclosures (TCFD) framework, which was recently endorsed by the Group of Seven. I’ve asked staff to learn from and be inspired by these external standard-setters. I believe, though, we should move forward to write rules and establish the appropriate climate risk disclosure regime for our markets, as we have in prior generations for other disclosure regimes.

Read the full speech.

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