U.S. Securities and Exchange Commission Chair Gary Gensler told Congress that the agency is open to a gradual and tailored approach to increases in climate-related disclosures from public companies.
The SEC has expressed interest in beefing up both qualitative and quantitative disclosures from companies not only regarding the risks that climate change poses to their businesses, but the strategy and governance those companies are adopting to respond to them.
Gensler told the House Financial Services Committee on Tuesday that SEC staff is currently looking at possible rulemaking. But Gensler suggested he was open to slowing the rollout of any rules, saying he could “potentially even phase the implementation amongst large and small issuers and also amongst the different types of disclosures.”
Proponents of climate risk disclosures argue that with the rising popularity of ESG (environmental, social, governance) investing, investors would benefit from standardized and transparent standards from the SEC. But skeptics worry that it would increase the regulatory burden on smaller firms.
Gensler has made it clear that he is intent on increasing disclosures, not just on climate-related matters, but on cybersecurity and workforce diversity as well. But Gensler told Congress Tuesday that as the SEC looks at potential rulemaking, he will solicit public comment to gauge the need and effectiveness of more disclosures.
“I think investors are asking for it, but again, we’ll find out when we put things out to notice and comment,” Gensler told the House Financial Services Committee.
Don't overpromise and underdeliver
Companies have already been ramping up mentions of ESG-related matters in their disclosures. But doing so raises questions about whether or not some public firms are under or overpromising on ESG initiatives like sustainability.
The Financial Times, for example, reported on Tuesday that shoemaker Allbirds pared back on references to a “sustainability principles and objectives framework” that it was deploying as part of its initial public offering ambitions.
Christina Thomas, a former advisor at the SEC, told Yahoo Finance that standardizing disclosures can also address companies getting too lofty with their advertised ESG initiatives.
“A company doesn't want to overpromise and underdeliver because then that puts them at risk that investors relied on that information and it was not accurate,” Thomas said.
Thomas, now a partner at Mayer Brown, added that the SEC should “carefully tailor” any rulemaking on disclosures to make sure they are asking companies to disclose the most relevant information to investors.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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