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Biden Administration Could Push for Greater Climate Change Risk, ESG Disclosures

As President-elect Joe Biden settles in, the new administration could push the Securities and Exchange Commission to require public companies to disclose climate risks and greenhouse gas emissions.

The SEC could establish rulemaking and guidance on the federal monitoring of environmental, social, and governance issues, Mintz reports. The decisions could come as a result of ongoing complaints from investor advocacy groups over inconsistent disclosure practices due to voluntary reporting frameworks that allows for companies to cherry-pick what they reveal.

SEC Chairman Jay Clayton previously relied on a “principles-based approach” to climate disclosure. Consequently, the SEC loosened certain requirements for companies under Regulation S-K and relaxed conflict-of-interest rules for independent auditors under Regulation S-X. Requirements were further eased on this over August and October.

However, Commissioner Allison Herren Lee, one of two Democrats who joined Biden’s three-member majority, opposed the SEC’s decision to make these changes to Regulation S-K, calling for the SEC to be demanding more ESG disclosures from companies.

“Shareholders are beginning to accomplish on climate change what they have accomplished on numerous other significant issues crucial to good governance and long-term value—focus management attention and drive valuable and needed change. The Commission should be encouraging this type of engagement, not stifling it,” Lee said.

“In the end, these amendments will restrict shareholders’ ability to oversee and engage with management of the companies they own. They do not properly value shareholder proposals or shareholder rights. And they will restrain shareholder efforts on issue that are of pressing importance to them and the broader economy,” she added in a public statement.

The regulatory framework would help provide more systematic guidelines that would also attract more investment money. Members of the Investment Company Institute formally called U.S. public companies to provide ESG disclosure consistent with standards set by the Task Force on Climate-Related Financial Disclosure (TCFD) and Sustainability Accounting Standards Board (SASB). This suggests that ESG and climate risk disclosure will likely to be met with investor support.

For more news, information, and strategy, visit the ESG Channel.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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