Bills Introduced to Strengthen Corporate Climate Disclosure – But is it enough?

by Brittany Tofinchio Palmer

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The Security Exchange Commission (SEC) issued guidance to companies in 2010 on providing climate disclosures.  Since then, the quality of such disclosures has not improved and enforcement has been insufficient.  Despite receiving letters from investors and state governments urging the SEC to improve the guidelines and enforce lack of disclosure, the Government Accountability Office issued a report in January 2016, stating that according to SEC staff, “the agency has no plans to specifically determine if additional actions related to disclosure of climate-related risks are necessary or appropriate in the public interest or for the protection of investors….” 

The SEC’s lack of initiative, and pressure from industry and investor groups, has led the Financial Stability Board to establish a Task Force on Climate-Related Financial Disclosures, chaired by Michael Bloomberg.  The Task Force will develop disclosure procedures to provide consistency, reliability, and efficiency across industry.  However, the procedures that the Task Force will develop in the coming year are strictly voluntary.

As a result of these events, Senator Reed and Representative Cartwright have introduced identical legislation in their respective chambers, S.2716 and H.R.4792, that attempt to strengthen disclosures, and therefore transparency, on a company’s climate-related risks.  The bills specifically target the oil, mining and gas industries, calling for the SEC to update and improve their climate disclosure guidance.  If passed by both chambers and signed into law, the SEC would have 180 days to update the guides for the above industries.  The agency would also be required to work with the Investor Advisory Committee to “(A) solicit and consider public input on appropriate disclosures to include; and (B) submit specific recommendations to the Commission.”  Failure to make such revisions would result in the requirement that the Chairman of the SEC appear before committees in both the Senate and House to provide an explanation.

S.2716 has been referred to the Committee on Banking, Housing and Urban Affairs and H.R.4792 has been referred to the Committee on Financial Services.  Neither bill has yet to move forward since their referral on March 17, 2016.

Reed and Cartwright hope to better protect investors with these bills, but only three industries have been targeted.  While fossil fuel industries do have significant climate-related risks, there are a number of other industries where investors and the public would greatly benefit from strong, structured, and enforceable (and enforced) climate disclosure requirements such as auto, electric power, and insurance.  These broader industry disclosure requirements would also put the U.S. more in line with other countries, such as those of the EU that must transpose an EU Directive which requires large undertakings to report on matters related to environmental risk by January 1, 2017.