SEC’s Gensler promises new climate-risk rules by end of 2021

U.S. Securities and Exchange Commission Chairman Gary Gensler said Wednesday that the SEC will by the end of the year release a proposed rule mandating public companies disclose climate-change related risks, but gave few hints as to how strict the rules will be and whether investors will be able to sue companies for straying from climate goals.

“Investors increasingly wan’t to understand the climate risks of the companies they own or might buy,” he said at a virtual event staged by the Principles for Responsible Investment. “Large and small investors representing literally tens of trillions of dollars are looking for this information to determine whether to invest, sell, or make a voting decision one way or another.”

The SEC has been signaling for months that it is ready to adopt rules mandating climate-risk disclosure, but Gensler’s speech indicated that the scope and impact of these rules on public companies and investors depends largely on the details of the yet-to-be written rules.

Public comments submitted to the SEC in recent weeks show that a fundamental point of disagreement between corporations and some investor groups on whether climate disclosures should be treated like other mandated financial disclosures in company annual reports, or whether they should be disclosed separately with the benefit of a “safe harbor” that shields companies from some fines and investor lawsuits.

Companies ranging from energy firms to FedEx FDX, -0.28% and Google parent Alphabet GOOG, -0.30% submitted comments objecting to these disclosures absent such a safe harbor, due to the uncertain nature of climate risks.

“Companies who voluntarily disclose climate-related information already do so with an existing obligation not to make materially misleading statements, and therefore there is not a practical justification to subject that information to additional legal liability,” The Chamber of Commerce wrote to the regulator in June. “Moreover, companies may choose not to set more ambitious climate commitments if legal liability continues to expand.”

The PRI group argued that not requiring companies to submit climate disclosures in a separate report from official SEC filings would make them less reliable to investors.

“Investors consider climate and ESG information in the same way they consider similar financial information… and as such, climate and ESG information merits the same level of assurance and accountability,” it wrote in a comment to the SEC. “The creation of a new regulation to require climate or ESG information to be reported in a separate way…other than the annual financial statement would inherently judge this information as unequal to other issuer information. “

Gensler noted in his speech that this fundamental question remains to be answered and that SEC staff continues its work on it.

The Chairman also said the SEC is still working on the scope of rules on mandatory disclosure of emissions, and whether they should include just the emissions created by the company’s operations or also those created by its entire value chain.

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The SEC will also develop standards for companies who wish to make commitments to reduce emissions by a certain date and for investment managers who advertise their funds as environmentally friendly, Gensler said.

In a question and answer session Gensler declined to weigh in on a debate over whether new SEC climate rules will simply push carbon intensive industries and assets into hands of private owners not overseen by the regulator.

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