As We Await SEC’s Final Climate Risk Disclosure Rule…Any Hints?

Can you read tea leaves? No doubt that is what both corporate sector and capital markets leaders are doing as they peruse the possible meanings of SEC Chair Gary Gensler’s recent comments at the FSOC (Financial Stability Oversight Council) regarding the pending "Final Rule" on corporate climate-related risk disclosure.

Chair Gensler said in his remarks: "The SEC has no role as to climate risk. But we do have an important role in helping to ensure that public companies make full, fair, and truthful disclosure about the material risks they face. Already today, issuers are making climate risk disclosures, and investors are making investment decisions based on those disclosures. Indeed, a majority of the top thousand [corporate] issuers by market cap already make such disclosures, including what’s known as Scope 1 and Scope 2 greenhouse gas emissions."

NOTE: In Chair Gensler’s published remarks, which are our Top Story below, he cited G&A Institute’s comprehensive annual research on corporate ESG / sustainability disclosure by S&P 500® and Russell 1000® companies as the basis for his statement on Scope 1 and 2 emissions disclosures by the top thousand issuers.

The SEC issued a draft rule in November 2022 – "The Enhancement and Standardization of Climate-Related Disclosures for Investors" – which has drawn a dramatic 15,000 comments that the agency is "carefully" reviewing in structuring the Final Rule. In his remarks to the FSOC, Chair Gensler said, "We greatly benefit from public input and, given the economics and the law, will consider adjustments to the proposed rule that the staff, and ultimately the Commission, think are appropriate in light of those comments."

While there was no official word from the SEC chair on when we can expect the Final Rule, it was important that his comments were delivered to a group of influentials in federal financial and banking regulation. The FSOC was created after the 2008 financial crisis and is made up of representatives from the important U.S. regulatory agencies, such as Secretary of Treasury Janet Yellen, who chairs the Council. There are 10 voting members (including chairs of the Federal Reserve, FDIC, Commodity Futures Trading Commission, and SEC) and five non-voting members.

In October 2021, the FSOC issued a new report in response to President Biden’s EO 14030, "Climate Related Financial Risk," and identified climate change as an emerging and increasing threat to U.S. financial stability. At that time, the SEC had begun to evaluate its corporate and investor disclosure rules and requested public comment on ways to improve climate disclosure.

A key question as we await the release of the SEC’s Final Rule: were Chair Gensler’s comments a pro forma update for fellow members of the FSOC, or a signal that the Final Rule incorporating changes from the public input is about to be released?

The release of the Final Rule will come in the tense atmosphere created by anti-ESG proponents at federal and state public sector levels. Republicans in Congress are busy with attacks on ESG, holding hearings and passing bills designed to reduce the use of ESG metrics and methodologies by investors. We’re seeing increased pressure now from both pro-ESG and anti-ESG sides, but the SEC is focused on staying true to its mission of protecting investors. The G&A team will continue to monitor this important development for public company disclosure of climate-related risk.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.