The House Financial Services Committee on May 12, 2021, advanced a bill mandating new corporate disclosures on climate risk.
The panel passed the bill during a markup session on a 28-24 vote. The legislation, if enacted, would drop an extensive new mandate on top of new SEC Chair Gary Gensler, who in the early innings of his term is mapping out his own rulemaking agenda, including a potential climate disclosure rule.
H.R. 2570, the Climate Risk Disclosure Act, is sponsored by Rep. Sean Casten of Illinois, with Sen. Elizabeth Warren of Massachusetts introducing the legislation in the Senate.
“We all know that climate change is a risk to the stability of the global financial system,” Casten said. “My bill represents a market-based solution to understand the impact of a changing climate on companies and provide investors, lenders, and insurers with better information.”
Casten’s bill would amend the Securities Exchange Act of 1934 to require covered issuers to make annual disclosures on the “identification of, the evaluation of potential financial impacts of, and any risk management strategies relating to” the physical and transition risks posed by climate change. Public companies would also need to describe any established corporate governance processes and structures to address climate risks; and describe specific actions taken to mitigate those risks; among other disclosures.
Also under the bill, the SEC would have two years to set out rules that establish, “in consultation with the appropriate climate principals,” climate-related disclosure requirements.
Those rules would be specialized for industries that include finance, insurance, transportation, electric power, mining, non-renewable energy, and any other sector deemed appropriate by the SEC. The commission would also need to issue reporting standards for “estimating and disclosing direct and indirect greenhouse gas emissions” by an issuer and its affiliates, among other provisions.
The SEC last issued climate guidance in 2010 in Release No. 33-9106, Commission Guidance Regarding Disclosure Related to Climate Change. In the guidance, the commission said companies should inform investors about the risks they face from climate change, including lawsuits, business problems, regulatory supervision, or international treaties. The significant effects of climate change, such as severe weather, rising sea levels, loss of farmland, and the declining availability and quality of water, have the potential to affect a public company’s operations and financial results and should be disclosed.
SEC Commissioner Allison Herren Lee, in her several-month stint as acting chair, had prioritized climate risk and began laying the groundwork for a rulemaking. In a February 24 statement, she said SEC staff will begin work on updating the 2010 guidance in Release No. 33-9106, and will more closely scrutinize climate disclosures companies are already making.
This article originally appeared in the May 14, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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