The Securities and Exchange Commission's climate disclosure rule proposal would benefit both investors and public companies, but further feedback is needed, SEC Chairman Gary Gensler said in a speech Tuesday to Ceres, a non-profit organization focused on sustainability.
The proposal, which was unveiled March 21, would "provide investors with consistent, comparable and decision-useful information for their investment decisions … and provide consistent and clear reporting obligations for issuers," Mr. Gensler said.
Under the nearly 500-page proposal, public companies would be required to disclose a host of climate-related information in their registration statements and periodic reports, including the oversight and governance of climate-related risks by the company's board and management. Companies would also have to disclose the greenhouse gas emissions they generate, and the "indirect" emissions generated from a company's supply chain, if material, though smaller companies would be exempt from the latter requirement.
Investors support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, Mr. Gensler said in his speech.
Moreover, many public companies already disclose some climate-related information, he added. SEC staff, in reviewing nearly 7,000 annual reports submitted in 2019 and 2020, found that a third included some disclosure related to climate change, Mr. Gensler said.
"It makes sense to build on what so many companies are already doing to enhance, again, the consistency, comparability and decision-usefulness" of these disclosures for investors, Mr. Gensler said.
The proposal is in line with the SEC's disclosure tradition, he added.
"We have a disclosure-based regime, not a merit-based one," he said. "Thus, the design of the proposal is consistent with those long traditions and the law; with concepts of investor decision-making and related materiality; and with what companies are already doing" based on standards published by the Task Force on Climate-related Financial Disclosures and the Greenhouse Gas Protocol.
Mr. Gensler said the SEC is looking for feedback on all areas of the proposal, including how it approaches disclosure regarding strategy, governance, risk management, targets, financial statement metrics and greenhouse gas emissions.
"We encourage a wide range of investors — from individuals to institutional, from chief investment officers and people managing pensions and endowments — what helps you and facilitates making your decisions?" Mr. Gensler said. "That's our role, that's where we can come in and bring some consistency."
The proposal's comment period ends May 20.
