SEC to prioritise climate change disclosure, shareholder proposal exclusions in 2023

The Securities and Exchange Commission is expected to prioritise rule-making on climate change disclosures, shareholder proposal exclusions, human capital reporting and board diversity in 2023.

The SEC’s workload for the year was revealed in the Biden administration’s newly published unified regulatory plan, based on regulatory agendas submitted by individual agencies in Q4 2022. A government statement said the plans were “a window into how the administration plans to continue delivering on the president’s agenda to advance economic prosperity and equity, [and] tackle the climate crisis”.

Foremost among the SEC’s priorities is the introduction of broad new rules requiring companies to disclose climate-related metrics such as emissions, climate targets and relevant policies to aid investor decision-making, in addition to new reporting requirements on how institutional investors voted on pay packages. The agency is due to make a ruling by April for both initiatives.

The SEC also plans to finalise by October the revision of Trump-era rules which had made it more difficult for shareholders to get ESG resolutions onto company ballots. Under the existing rules, shareholder resolutions must meet certain hurdles if they are to be re-tabled and can be struck off by companies if they are assessed to be similar to other proposals.

The commission has proposed changes to soften the regulatory text in line with its recent efforts to tip the balance of power towards investors and away from companies on matters of stewardship and shareholder rights.

An October deadline has also been set for the SEC to amend its fund name rules to ensure that funds sold as being sustainable or green investments are not missold. The regulator has said that it will improve and clarify “the requirement for certain funds to adopt a policy to invest at least 80 percent of their assets in accordance with the investment focus that the fund’s name suggests”.

Finally, the SEC is due to adopt anti-greenwash measures which will see investment managers and other financial institutions report on their funds’ ESG approach and strategy, again by October. Investment advisers and consultants will also fall under the rule’s scope and will be required to provide information regarding their ESG processes.

Longer-term regulatory priorities for the SEC in 2023 include rule amendments to enhance disclosures on board member and nominee diversity, and human capital management. A dated workplan has yet to be issued for these social-focused initiatives.

The SEC’s schedule suggests that the US could this year bridge the gulf with other key global markets, most of which have moved quickly to introduce ESG rules and regulations. To date, the US has been a notable laggard with regards to ESG and climate disclosures, green taxonomies and corporate transition planning.