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Acting Chair Lee Discusses the SEC's Focus on Climate Change and ESG, Solicits Public Comment on Disclosure Framework
Practical Law Legal Update w-030-1517 (Approx. 5 pages)
Acting Chair Lee Discusses the SEC's Focus on Climate Change and ESG, Solicits Public Comment on Disclosure Framework
by Practical Law Corporate & Securities.
| Published on 17 Mar 2021 • USA (National/Federal) |
The SEC's Acting Chair Allison Herren Lee gave a speech discussing the SEC's newly enhanced focus on climate change and ESG, and issued a statement soliciting public input on existing and potential new disclosure requirements related to climate change.
On March 15, 2021, the SEC's Acting Chair Allison Herren Lee gave public remarks at the Center for American Progress discussing the SEC's newly enhanced focus on climate change and highlighting recent steps taken to further evaluate how the SEC can address ESG-related issues (see A Climate for Change). Lee also issued a statement requesting public input on potential changes to SEC disclosure rules or the adoption of a new disclosure framework related to climate change (see Public Comment on Climate Change Disclosure).
A Climate for Change
Acting Chair Lee's speech covered a wide range of topics, including:
- Helping to ensure that material ESG information gets into the markets in a timely manner.
- Protecting the rights of shareholders.
- Ensuring accountability through the Divisions of Examinations and Enforcement.
- Global engagement and cooperation on ESG and climate issues.
- Additional areas of SEC focus.
Improving ESG Disclosure
Lee highlighted specific steps the SEC has taken recently toward a comprehensive ESG disclosure framework aimed at producing consistent, comparable, and reliable data that investors need, including:
- Directing the Division of Corporation Finance to enhance its focus on climate-related disclosure (see Legal Update, SEC's Acting Chair Directs the Division of Corporation Finance to Enhance Review of Climate-Related Disclosure).
- Requesting public input on future SEC policymaking regarding ESG and climate disclosure (see Public Comment on Climate Change Disclosure).
In addition to making progress on a standardized ESG disclosure framework, Lee stated the SEC should also consider initiatives in the near term, such as:
- Offering guidance on human capital disclosure to encourage better disclosure related to workforce diversity.
- More specific guidance or rulemaking on board diversity.
- Developing more input on political spending disclosure.
Protecting Shareholder Rights
Noting the high number of ESG-related shareholder proposals each year and the importance of the shareholder proposal and proxy voting processes to improving corporate governance, Lee also stated she has asked SEC staff to:
- Develop proposals for revising SEC or staff guidance on the no-action process and potentially revising Rule 14a-8 itself.
- Consider recommendations for enhancing, supplementing, or replacing the SEC's August 2019 guidance on proxy voting responsibilities of investment advisers (see Legal Update, SEC Issues New Guidance Regarding Investment Advisers' Proxy Voting Responsibilities and the Application of Proxy Rules to Voting Advice).
- Consider updates to disclosures of fund voting decisions filed on Form N-PX.
- Consider whether to recommend that the SEC reconsider the universal proxy rule proposal from 2016 (see Legal Update, SEC Proposes to Require Universal Proxy Cards in Contested Director Elections).
Ensuring Accountability
Lee also highlighted her recent actions to leverage the Divisions of Examinations and Enforcement to foster corporate accountability, including:
- The Division of Examination's annual examination priorities for 2021 included an enhanced focus on climate and ESG (see Legal Update, SEC Division of Examinations Publishes 2021 Examination Priorities).
- The Climate and ESG Task Force was created in the Division of Enforcement to develop initiatives to proactively identify ESG-related misconduct, including identifying any material gaps or misstatements in companies' disclosure of climate risks under existing rules (see Legal Update, SEC Creates Climate and ESG Task Force in the Division of Enforcement).
Global Engagement
Throughout her remarks, Acting Chair Lee referenced the global nature of ESG and climate-related issues, and the need for close engagement and cooperation with both domestic and international regulators. In particular, Lee highlighted:
- Her support for IOSCO's recent statement regarding the creation of a Sustainability Standards Board.
- The need for the SEC to consider developing a dedicated standard setter for ESG domestically (similar to the FASB), under SEC oversight, to devise an ESG reporting framework that would complement the SEC's financial reporting framework.
Other Areas of Focus
Lee closed her remarks by highlighting other areas of potential focus. Still on the topic of climate change and ESG, Lee discussed steps to enhance the reliability of existing climate and ESG disclosure, such as potentially requiring auditor attestation of voluntary sustainability reports.
Beyond climate and ESG issues, Lee discusses:
- Examining the effects on retail investors of the continued flow of capital away from public markets, including reconsidering rulemaking to increase the SEC's visibility into the private markets, such as:
- revisiting amendments to Form D that the SEC proposed in 2013; and
- reconsidering updates to the wealth thresholds in the accredited investor definition, including by indexing the wealth thresholds to inflation.
- Equity market structure reforms, including a review of the many factors that affect whether retail investors receive the best execution of their trades.
Public Comment on Climate Change Disclosure
As mentioned above, Acting Chair Lee also issued a public statement requesting public input on the SEC's existing disclosure rules and guidance relating to climate change, and whether and how they should be modified.
In particular, Lee's statement provides a list of 15 groups of questions for the staff and commenters to consider across a number of issues, including, among others:
- The types of climate change information that should be disclosed.
- The advantages and disadvantages of allowing investors, registrants, and other industry participants to develop mutually agreed upon standards, and whether such standards should have to satisfy minimum disclosure requirements established by the SEC.
- The development of a single set of global standards applicable to companies around the world, including registrants under the SEC's rules, compared to having multiple standard setters and standards.
- How disclosures made under reporting standards should be assessed, such as making disclosures subject to audit or another form of assurance.
- How SEC rules should address climate disclosure by private companies, such as through the exempt offerings or the SEC's oversight of certain investment advisers and funds.
- The creation of a broader ESG reporting framework of which climate-related disclosure is one part.
The SEC has set up a web form and email box for the submission of comments. Comments should be submitted within 90 days from the date of the statement (which would end on June 13, 2021). Lee also encouraged commenters to include empirical data and other information in support of their comments.