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CalPERS leads $1.1tn investor movement for better material ESG reporting standards from SEC

CERES is co-ordinating effort to improve climate change risk reporting

A coalition of investors who manage $1.1tn of assets has urged the Securities and Exchange Commission (SEC) to beef up the requirements for how sustainability risks, such as climate change, water scarcity and global deforestation, are reported by listed companies in the US.

The group of 45 investors, coordinated by advocacy group CERES and led by $300bn California pension giant CalPERS, has written to the SEC to ask it to improve reporting on material sustainability risks in issuers’ filings before waiting for the results of consultations and other initiatives focused on financial disclosures.

Signatories of the letter include Anne Simpson, Investment Director, Global Governance at CalPERS, New York State Comptroller Thomas DiNapoli and Kieran Quinn, Chair of the Local Authority Pension Fund Forum (LAPFF) in the UK.

Simpson said that voluntary disclosure, the model currently used by the SEC, is like “Swiss cheese – appetizing and full of holes”. She added: “Investors need robust, mandatory reporting to capture climate change risks across their portfolios.”

The letter urges the SEC to “immediately” step up its efforts “both because such disclosure is mandated by current law and because we [investors] need it to make informed investment and proxy voting decisions”.

It adds that climate change poses material risks “which we believe are becoming increasingly significant to companies in multiple sectors”, and points out that oil and gas, electricity and coal companies’ failure to account for dwindling fossil fuel demand in their business plans is particularly worrying.

The letter was sent in response to the SEC’s request for comment on a wide range of disclosure topics to shape its future rulemaking, as the regulator is set to review disclosure rules where they may have become redundant, duplicative or overlapping with other listings requirements.This consultation marks the first time that the Commission has asked for investor input on climate change and sustainability risk reporting matters.

The investor coalition suggests that the SEC consider sustainability reporting “as it would any other disclosure issue”, namely starting with appropriate new rules, staff who are trained to understand and focus on sustainability issues, comment letters to issuers with “deficient” disclosures and other enforcement mechanisms, and regular dialogue with investors and issuers.

Voluntary disclosure is like “Swiss cheese” – CalPERS’ Simpson

They also ask for a flexible system that can evolve due to other regulatory changes, technological advancement or scientific findings in the field of climate change.

The letter’s authors also suggest taking inspiration from sustainability reporting frameworks developed by the Global Reporting Initiative, CDP and other bodies.

Ceres’ president, Mindy Lubber, said the letter marks the pinnacle of her organization’s continued work with investors to improve corporate sustainability reporting.

She added: “SEC Chair Mary Jo White’s recent statements that sustainability disclosure ‘has our attention’ are a real shift in the SEC’s posture. The Commissioner and its staff should immediately step up efforts to enforce its existing rules to improve sustainability reporting.”

At the International Corporate Governance Network’s (ICGN) annual conference in June, White announced that the regulator was drafting board diversity disclosure rules for listed firms and would soon turn its attention to how sustainability and climate-change related information is published by issuers. Link