Disclosure Effectiveness Initiative; Environmental and Climate-Related Disclosures

In remarks last week, Securities and Exchange Commission Chair Clayton discussed the SEC’s proposed amendments to streamline and modernize the requirements for Management’s Discussion and Analysis (MD&A) disclosures.  The proposed amendments continue the SEC’s progress with its disclosure effectiveness initiative.

Chair Clayton also commented on other areas of disclosure and rulemaking focus, including, among others:  (1) LIBOR transition; (2) cybersecurity and information system integrity and resilience; (3) environmental and climate-related disclosures; (4) the protection of intellectual and other property in jurisdictions with varying legal regimes and access requirements relating to intellectual and other property; (5) Brexit transition; (6) the Public Company Accounting Oversight Board (PCAOB)’s ability to conduct inspections of audit firms in China and other jurisdictions; and (7) matters related to the role and functioning of audit committees.

Chair Clayton provided a summary of the work undertaken by the SEC regarding the issue of environmental and climate-related securities law disclosures.  Chair Clayton noted that any consideration of environmental and climate-related disclosures are complex as a result of a number of factors, including the fact that many of these issues involve multinational matters, decisions regarding capital allocation and other matters undertaken by registrants in this regard necessarily involve forward-looking statements, estimates and assumptions and the disclosure framework is premised largely on having registrants share verifiable and largely historic information, and disclosure and liability frameworks differ across jurisdictions, although the interest in, and impact of, environmental and climate-related developments, is not isolated to a particular jurisdiction and its regulator.

Chair Clayton noted that since the 2010 SEC interpretive release on environmental and climate-related disclosures, the SEC staff has continued to consider these matters.  In addition, the Staff in the Office of Compliance Inspections and Examinations is reviewing disclosures of investment advisers and other issuers regarding funds and other products that pursue environmental or climate-related investment mandates to ensure that investors are receiving accurate and adequate information about the material aspects of those strategies.  The SEC staff also engages on environmental and climate-related disclosure topics through staff trainings, meetings with investors and market participants and outside speaking engagements.  SEC representatives also participate in various international discussions relating to climate-related securities law disclosures, including working as a member of IOSCO’s Sustainable Finance Network (SFN) Steering Group.  The SEC, as a member of the Financial Stability Board (FSB), participated in the Task Force on Climate-Related Financial Disclosures (TCFD).  The TCFD has developed recommendations for voluntary, consistent climate-related financial disclosures that would be useful to lenders, insurers, investors and other market participants in understanding material risks in the financial sector.  Clayton noted that members of the SEC staff have engaged on a bilateral basis with senior officials from the Bank of England, the UK Financial Conduct Authority, the European Securities and Markets Authority, the European Commission, various representatives of the European Union and various other financial regulators on environmental and climate-related disclosures.

Clayton noted that the SEC Staff is particularly interested in additional feedback and engagement including (1) discussing with issuers, such as property and casualty insurers, the extent to which they use, and their experience with, environmental and climate-related models and metrics in their operations and planning, including price, risk and capital allocation decisions; and (2) discussing with asset managers that have been using environmental and climate-related models and metrics to allocate capital on an industry or issuer specific basis their experience with that process.

The full text of the remarks are available here.