The U.S. Securities and Exchange Commission (SEC) issued a call for public comments on climate disclosure, in the latest signal that the commission will overhaul public company obligations towards sustainability reporting.

The request follows an announcement made last month that the SEC has initiated a review of its guidance for public company obligations for disclosures related to climate change risk, citing increased demand by investors for material, comprehensive and consistent information.

Disclosure has become a key focus issue for investors looking to increasingly integrate climate and other sustainability issues in their investment processes, with a lack of consistent, comprehensive data repeatedly cited as the key barrier to sustainable investing.

Several countries have signaled a significant ramp in ESG reporting requirements recently. In November 2020, UK’s Chancellor of the Exchequer Rishi Sunak announced plans to make the UK the first country in the world to mandate economy wide disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD). European regulators have also recently signaled support for the creation of global sustainability reporting standards, and the European Commission is reviewing its owns non-financial reporting directive (NFRD) rules with an eye to enhancing climate and other sustainability-related disclosures.

In its statement, the SEC listed a series of questions for public commentary covering a broad range of topics, covering the SEC’s role in regulating, monitoring, reviewing, and guiding climate change disclosures, what climate data can and should be measured, the development of standards and the use of existing frameworks such as SASB and TCFD, and the extent to which climate reporting should be integrated into existing reporting frameworks.

Among other issues, the statement also examines key focus issues including the potential development of a single set of global standards applicable to companies around the world, and the extent to which climate disclosure should be mandated, such as the application of a ‘comply or explain’ framework.

In a speech yesterday at the Center for American Progress (CAP), SEC Acting Chair Allison Herren Lee summarized information requested by the SEC:

“There are important questions to be answered here – what data and metrics are most useful and cut across industries, to what extent should we have an industry-specific approach, what can we learn from existing voluntary frameworks, how do we devise a climate disclosure regime that is sufficiently flexible to keep up with the latest market and scientific developments? Finally, how should we address the significant gap with respect to disclosure presented by the increasingly consequential private markets?”

SEC Becomes Fully Engaged in ESG

In her speech at CAP, Lee went well beyond climate disclosure, and discussed the evolving and increasingly active role the SEC will take on issues of ESG and sustainability. As ESG issues have become increasingly intertwined within investment considerations and performance, Lee stated that these issues are becoming a central focus at the SEC.

Lee said:

“Human capital, human rights, climate change – these issues are fundamental to our markets, and investors want to and can help drive sustainable solutions on these issues. We see that unmistakably in shifts in capital toward ESG investing, we see it in investor demands for disclosure on these issues, we see it increasingly reflected on corporate proxy ballots, and we see it in corporate recognition that consumers and investors alike are watching corporate responses to these issues more closely than ever.

“That’s why climate and ESG are front and center for the SEC. We understand these issues are key to investors – and therefore key to our core mission.”

Lee went on to highlight several of the areas where the SEC will focus its efforts on ESG and sustainability issues, including disclosure, improvements to the shareholder proposal process, proxy voting issues, and enhancing focus on climate and ESG in the SEC’s annual examinations, among other issues.

Lee also pledged to engage with regulators, standard setters and other bodies around the world to address issues such as the establishment of common benchmarks and standards for ESG measurement and reporting, and expressed her support for IOSCO’s recent statement regarding the creation of a Sustainability Standards Board.

Lee said:

“At the agency, we are taking a holistic look at all of the ways climate and ESG intersect with our regulatory framework, and moving ahead with efforts across our offices and divisions to account for that. In the last couple of months, we’ve taken important steps forward. And we are actively laying the groundwork for more progress to come.”

Click here to view a full transcript of SEC Acting Chair Allison Herren Lee’s speech.