Mandating public companies disclose climate risks will be a benefit to investors and the market as a whole, SEC Chairman Gary Gensler said Wednesday.
"Today, investors increasingly want to understand the climate risks of the companies whose stock they own or might buy," Mr. Gensler said at a virtual event hosted by the Principles for Responsible Investing. "Large and small investors alike, representing literally tens of trillions of dollars, are looking for this information to determine whether to invest, sell, or make a voting decision one way or another."
The Securities and Exchange Commission is currently working on rule-making for climate-risk disclosure and received more than 550 unique comments on the issue during a comment period that ended in June.
Through the rule-making, a proposal for which Mr. Gensler has asked the SEC staff to unveil by the end of the year, Mr. Gensler said the SEC can bring greater clarity to climate-risk disclosures by making them consistent and comparable. "When disclosures remain voluntary, it can lead to a wide range of disclosures, often inconsistent (and) hard to compare with one another," he added.
Mr. Gensler has asked the SEC staff to consider a variety of qualitative and quantitative information about climate risk that investors either currently rely on or believe would help them make investment decisions going forward, he said.
While qualitative disclosures could answer key questions, such as how the company's leadership manages climate-related risks and opportunities and how these factors feed into the company's strategy, quantitative disclosures could include metrics related to greenhouse gas emissions, financial impacts of climate change and progress toward climate-related goals, Mr. Gensler explained.
The SEC is also considering additional disclosures for fund managers, according to Mr. Gensler. "We've seen a growing number of funds market themselves as 'green,' 'sustainable,' 'low-carbon,' and so on," he said. "What information stands behind those claims? The basic idea is truth in advertising."
To that end, the SEC staff is now considering recommendations about whether fund managers should disclose the criteria and underlying data they use.
"I think updates to public company disclosures and to fund disclosures could bring needed transparency to our capital markets," Mr. Gensler said. "This gets to the heart of the SEC's mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
The Principles for Responsible Investing is a supporter of mandatory climate-risk disclosures. "There's no way to disentangle the climate crisis from our financial markets, but there are ways to acknowledge this fact and take action: incorporate it into our investment decisions and our overall investment objectives," said Fiona Reynolds, CEO of PRI, during Wednesday's event.
Mr. Gensler's policy director at the SEC, Heather Slavkin Corzo, was most recently head of U.S. policy for the PRI.