Global Risk Regulator, June 7, 2022

Companies listed in the US will face one of the most exacting climate-related disclosure regimes in the world if the Securities and Exchange Commission gets its way, and there are already concerns that it goes too far.

The U.S. Securities and Exchange Commission (SEC) proposals will echo around the world as other securities regulators feel bound to keep pace. Such disclosure regimes are strongly supported by institutional investors who will push regulators and companies to be more open about climate risks.

“With the SEC’s proposed rule, we’re moving from voluntary territory into what you need to do as your licence to operate,” says Julia Salant, head of sustainability innovation at EcoVadis, a sustainability ratings firm. “I think it is a game-changer.”

But there are concerns over whether companies can meet the SEC’s proposed climate related reporting obligations (April GRR: SEC ESG disclosure plans could be undermined by data gaps).

On March 31, the SEC proposed rules to enhance and standardise climate-related disclosures to investors. If the SEC’s proposals come into force, and most experts believe they will in some form, listed companies would have to include information about their climate risks in their registration statements and periodic reports. This would include information about the likely material impact of climate change on their businesses, operations and finances over different time frames. They would even have to disclose how climate change could change their corporate strategies and business models.

“Transparency is probably the most important element in all of those things [for risk management],” says Keith Fortson, global head of ESG at integrated risk management provider Riskonnect. “Unknown risk is expensive, it’s hard to price. What gets measured can be managed.”

Firms would also need to include certain climate-related financial statement metrics in their audited financial statements.

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