Workable ESG Rules Remain a Top SEC Goal

SEC Continues to Seek Input on Climate Disclosures

As we have previously noted on our blog post series, the US Securities and Exchange Commission (SEC) remains vigilant in its pursuit of rules addressing environmental, social, and governance (ESG) and climate change issues. SEC Chairman Gary Gensler recently reaffirmed the commission’s stance at the Conference on Financial Market Regulation, noting that this matter remains at the top of the SEC’s agenda.

Gensler Affirms Climate Disclosure Rules Among Top Priorities

On May 13, 2021, less than a month after being sworn in as SEC Chairman, Gensler opened the annual conference with a robust statement regarding the SEC’s top priorities during his tenure. Gensler noted in his speech that investors increasingly demand and focus on climate risk and human capital issues. The chairman spoke about how this increasing demand to better understand ESG, including in particular climate-risk issues, is the main driver of the commission’s consideration to update its regulatory approach to climate disclosures. 

Gensler also argued that clear and consistent rules regarding disclosures have historically benefited both issuers and investors. According to Gensler, “[S]ome worried the securities regulations in the 1930s could spell the end of capitalism, and disclosure was a central part of that debate. Of course, that hasn't borne out, and our capital markets remain the envy of the world to this day."  Consequently, Gensler highlighted that ESG and human capital disclosures will be among the SEC's key efforts to refresh its disclosure regime.

Latest Comments Signal that SEC Is Likely to Increase Scrutiny of Climate Disclosures

In March 2021, the SEC welcomed public input and commentary on whether current disclosures adequately inform investors on climate change disclosure and invited the public to submit empirical data and other information in support of their comments. During his speech, Gensler echoed this earlier invitation and encouraged more public input on climate disclosures. Gensler further directed SEC staff to collect and analyze this input and to draw on it to shape the commission’s regulatory approach. The public input comment period is expected to end in June, and the SEC plans to consider this input in assessing the materiality of climate-related disclosures and the costs and benefits of different regulatory approaches to climate disclosure. In April 2021, the SEC also issued a risk alert detailing observations from examinations of investment advisers, registered investment companies, and private funds offering ESG products and services.  With the pace of these developments, we expect to see heightened scrutiny of climate disclosures before the end of the year. 

Gensler’s remarks are in line with the message the SEC has been sending throughout this year and the continuous emphasis on ESG reporting and compliance issues.  The chairman’s commentary serves as a reminder to issuers and ESG stakeholders that the SEC is not dropping the ball on these progressive business imperatives.