Bloomberg Tax
Feb. 9, 2021, 9:46 AM

New SEC’s First Climate Disclosure Tool Is Blast From the Past

Andrew Ramonas
Andrew Ramonas
Securities Regulation Reporter

Democrats newly in charge of the Securities and Exchange Commission don’t have to wait for new rules to pressure companies for more disclosures about how climate change impacts them: One tool is there, waiting to be used again after years collecting dust.

Democrat Allison Lee frequently called for more corporate climate-related reporting before she became the SEC’s acting chair last month, echoing similar entreaties from President Joe Biden, and the SEC guidance on climate-change disclosures adopted when Biden was vice president in 2010 carries some weight because commissioners voted to release it.

The 29-page document doesn’t have the force of a rule and lacks legal requirements for companies. Still, invoking it would give Lee a quick alternative to creating new rules or formally updating the guidance, while emphasizing the importance of companies providing better information to investors.

“Absent rulemaking or other commission action, it’s the only tool that she has right now to improve disclosure around climate risk,” said Ropes & Gray LLP senior counsel Keith Higgins, a former head of the SEC’s Division of Corporation Finance, which reviews companies’ filings.

Oil companies are among those facing investor pressure to provide more climate disclosures. Exxon Mobil Corp., for example, planned to increase its yearly carbon-dioxide emissions 17% by 2025 under its $210 billion investment strategy, but never publicly disclosed the information, Bloomberg News has reported. Exxon called the projections “an early assessment that does not include additional mitigation and abatement measures that would have been considered as the next step in the process.”

Lee has signaled the importance of environmental, social, and governance issues as acting chair with the hiring of the agency’s first-ever senior policy adviser for climate and ESG. ESG matters are of “great significance to investors and the capital markets,” she said at the time.

“It is naturally important to continue to examine how previous guidance has been enforced in the decade since, as well as how market participants have reacted to that guidance, as part of broader efforts to update the approach in this area,” according to a person familiar with the matter.

It’s unclear when, or if, the SEC may take any action concerning the guidance under Lee, whose stint leading the agency will end when the Senate confirms her successor. Action could fall to Gary Gensler, Biden’s nominee for chairman, if he’s approved.

Pros, Cons

Between the document’s adoption in 2010 and 2014, the SEC staff sent 11 companies letters that formally cited the guidance and questioned compliance with it, according to a Bloomberg Law review of agency documents. No other comment letters explicitly referenced the guidance after 2014. The SEC also has asked companies about their climate disclosures without directly invoking the guidance since 2010, but in a limited fashion, a government study showed.

The guidance was intended to clarify what companies should already have been doing: making disclosures about the effects of climate-related legislation, regulation, and international accords, as well as other developments concerning climate change, if material to their businesses.

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Paint manufacturer Sherwin-Williams Co. and Chinese oil and gas company CNOOC Ltd. were among those to hear from the SEC.

The agency asked Sherwin-Williams what thought it gave to the guidance in a 2010 comment letter. The paint maker responded that it previously disclosed that its position in the chemical industry subjects it to many environmental regulations, and it would report new information about climate change matters “as appropriate.”

The SEC reminded CNOOC it should disclose the impact global warming has on it physically, as well as how climate change regulation and business trends affect it, if material, according to a 2014 comment letter that cited the guidance. CNOOC told the agency it already disclosed that China and other countries have applicable environmental laws and it complies with them. The oil and gas company also said it considered climate change-related business trends and physical impacts, like “extreme weather,” in its disclosures.

Ceres, a nonprofit organization founded by investors and environmentalists, has raised concerns about the SEC’s limited use of the guidance over the years and is looking for the agency to start changing direction.

“The guidance is an absolutely great short-term initiative,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets. “There’s others, as well, that the SEC can work on.”

Ceres has urged the commission to adopt rules mandating corporate disclosures related to climate risk, using a voluntary reporting framework from the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures as a guide. (The task force is led by Michael Bloomberg, founder of Bloomberg LP. Bloomberg Law is operated by entities controlled by Michael Bloomberg.)

The TCFD has several recommendations for making disclosures related to managing and measuring climate risk, including urging companies to explain their costs of transitioning to a lower-carbon economy.

New Rules?

Lee can direct the Division of Corporation Finance staff to take a closer look at company filings with an eye toward the guidance. This could lead to new staff-level disclosure guidance telling companies what the agency is looking for in their filings. Individual companies also could get more questions from the SEC about their climate disclosures.

Lee and her staff could also begin drafting climate disclosure rules while she’s acting chair, leaving them to Gensler to take up. The SEC’s two Republicans likely would block any rulemaking or other action that requires a commission vote on climate disclosures until Democrats gain the majority with a third member at the agency.

The American Chemistry Council, American Petroleum Institute, and other industry groups have told the SEC its 2010 guidance is sufficient, and the agency doesn’t need to require more disclosures.

“Many ACC members already provide information about emissions and climate related risks as part of the information they share with stakeholders,” Jennifer Scott, a spokeswoman for the trade group, said in a statement. “We will continue to evaluate the Administration’s plans as they are announced, including any that may emerge from the SEC.”

The need for climate disclosureshas grown in the 11 years since the guidance came out, former SEC Chairman Mary Schapiro said recently at a Brookings Institution discussion on climate change and financial market regulations.

Schapiro, a TCFD member, led the SEC when it adopted the guidance. (She also is vice chair for public policy and special adviser to the founder and chairman at Bloomberg.)

“If we thought about in 2010 that it was important to have that disclosure, it is magnitudes more important today,” Schapiro said.

To contact the reporter on this story: Andrew Ramonas in Washington at

To contact the editor responsible for this story: Bernie Kohn at; Michael Ferullo at