SEC Deadline Passes for Climate Risk Comments

Time has run out to provide input on climate risk disclosures. There are several key dates that businesses interested in tracking environmental, social, and governance (ESG) regulatory updates should note this year, and one of those was June 14, 2021. This date marked the end of the period during which the US Securities and Exchange Commission (SEC) was accepting comments on potential changes to disclosure requirements relating to climate risk and ESG issues more generally. 

SEC’s Ongoing Focus on Climate Risk and ESG Issues

The SEC has repeatedly indicated that climate risk and ESG will be a priority going forward. In March 2021, the SEC commissioned a Climate and ESG Task Force to take the lead in investigating inadequate disclosures of climate risk under the current disclosure rules. It also launched a new webpage dedicated to all the agency’s efforts and actions on ESG issues. In April, the SEC’s Division of Examinations issued a risk alert detailing observations from recent exams of investment advisors, registered investment companies, and private funds offering ESG products and services. The alert included observations about internal control weaknesses, potentially misleading statements regarding ESG investing processes, and practices that the SEC considers effective approaches to ESG investing.

SEC’s Request for Public Input

The SEC also signaled that additional disclosure requirements may be coming. In March, the SEC requested public input from market participants regarding whether current disclosures are sufficient to adequately inform investors about material risks, uncertainties, impacts, and opportunities. The SEC specifically solicited comments regarding how disclosures can provide “consistent, comparable, and reliable information,” while also providing clarity to registrants regarding what is expected of them. The SEC additionally sought input on the relative advantages and disadvantages of the wide range of available frameworks and standards to measure climate-related risk and other ESG factors. 

The SEC accepted comments regarding the effectiveness of the current disclosure requirements for communicating climate risks through June 14, 2021. While companies already report material climate risk under the current framework, we may soon know whether the SEC will issue more specific obligations, such as requiring companies to report physical and transition climate risks in line with the recommendations from the Task Force on Climate-related Financial Disclosures, as New Zealand and the UK have done. If this happens, companies that wish to avoid scrutiny from the current climate-focused SEC will have their work cut out for them as they ensure their reporting controls sufficiently account for climate risk.