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SEC consultation sees three-quarters back mandatory climate disclosure rules, Chair reveals

Previous voluntary climate guidance led to ‘inconsistent disclosures’, Gensler says

The vast majority of respondents to the US Securities and Exchange Commission’s (SEC) recent consultation on corporate ESG disclosures have backed the introduction of mandatory rules around climate, its Chair has revealed. 

Speaking yesterday on a webinar hosted by the Principles for Responsible Investment (PRI), the SEC Chair, Gary Gensler, said that 75% of the 550 unique responses it received supported mandatory climate disclosures. 

The securities regulator closed its consultation last month, attracting responses from companies, asset owners, asset managers, NGOs, consultants, academics and trade bodies. 

Guidance on climate change was last issued by the SEC in 2010, under the then chair Mary Schapiro, who now heads up the Taskforce on Climate-related Financial Disclosures (TCFD) secretariat. 

Gensler told listeners that the existing climate risk disclosure guidance for companies doesn’t give investors the “ability to compare company disclosures to the degree that they need”.

“Generally, I believe it’s with mandatory disclosures that investors can benefit from that consistency and comparability. When disclosures remain voluntary, it can lead to a wide range of inconsistent disclosures,” he said. 

Last week, SEC Commissioner Hester Pierce, one of the two Republican representatives at the regulator, pushed back against mandatory disclosures, arguing in a speech that further guidance on ESG would be a “better path forward” than creating “a prescriptive ESG rule that departs from and undermines our agency’s limited, but important role”.

The SEC staff are also looking at whether ESG disclosures should be made in companies’ financial filings (10-K forms). Some big US companies – including Alphabet and Microsoft – have, however, expressed concerns that reporting ESG information in financial filings might leave them open to lawsuits if that information is found to be incorrect. 

Gensler also said on the webinar that the SEC staff would be looking into metrics and data that could be used by investors to track the progress of corporate Net Zero pledges.

“Today, though, companies could announce plans to be ‘Net Zero’ but not provide any information that stands behind that claim. For example, do they mean Net Zero with respect to Scope 1, Scope 2, or Scope 3 emissions?”, he said.

Similar work on providing investors with more information on funds labelled as sustainable is also being explored at the SEC, including whether fund managers “should disclose the criteria and underlying data they use”, Gensler said.

“I think investors should be able to drill down to see what’s under the hood of these funds,” he added. 

On this issue, Gensler also said that the SEC will consider taking a “holistic look” at the SEC’s Names Rule, which was introduced in 2001 and requires a fund to invest at least 80% of its assets in the manner suggested by its name. 

The SEC is expected to propose a rule by October.