In the first quarter of 2021, the Securities and Exchange Commission (SEC) has taken significant steps to update its requirements and enforcement on climate and Environmental, Social, and Corporate Governance (ESG) disclosures.
“Now more than ever, investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future,” said Acting SEC Chair Allison Herren Lee in a statement released on February 24, 2021. “Ensuring compliance with the rules on the books and updating existing guidance are immediate steps the agency can take on the path to developing a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures.”
This statement announced that Lee has directed the SEC’s “Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings. The Commission in 2010 provided guidance to public companies regarding existing disclosure requirements as they apply to climate change matters. As part of its enhanced focus in this area, the staff will review the extent to which public companies address the topics identified in the 2010 guidance, assess compliance with disclosure obligations under the federal securities laws, engage with public companies on these issues, and absorb critical lessons on how the market is currently managing climate-related risks. The staff will use insights from this work to begin updating the 2010 guidance to take into account developments in the last decade.”
Additionally, on March 4, 2021, the SEC announced it has created a Climate and ESG Task Force in the Division of Enforcement.
“Consistent with increasing investor focus and reliance on climate and ESG-related disclosure and investment, the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct,” according to the SEC’s press release. “The task force will also coordinate the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations.”
The SEC’s initial stated focus for the task force is for it “to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules. The task force will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.”
This work is expected to complement other SEC initiatives such as “the recent appointment of Satyam Khanna as a Senior Policy Advisor for Climate and ESG.”
The new task force will work closely with the Divisions of Corporation Finance, Investment Management, and Examinations.
The task force will also investigate climate and ESG whistleblower complaints and tips and referrals and provide SEC teams with climate and ESG expertise.
“Climate risks and sustainability are critical issues for the investing public and our capital markets,” Lee said. “The task force announced today will play an important role in enhancing and coordinating the efforts of the Division of Enforcement, the Office of the Whistleblower, and other parts of the agency to bolster the efforts of the Commission as a whole on these vital matters.”
“Proactively addressing emerging disclosure gaps that threaten investors and the market has always been core to the SEC’s mission,” said Acting Deputy Director of Enforcement Kelly L. Gibson, who will lead the task force. “This task force brings together a broad array of experience and expertise, which will allow us to better police the market, pursue misconduct, and protect investors.”
In addition to Gibson, the task force will comprise 22 members drawn from the SEC’s headquarters, regional offices, and enforcement specialized units.