Securities and Exchange Commission Issues Statement Regarding Climate Change Disclosures

Abigail Heeter

Associate Editor

Loyola University of Chicago School of Law, JD 2022

One of President Joe Biden’s promises to America if elected President of the United States was to be more proactive to fix the increasing issue of climate change. Previously, during his tenure as Vice President, in 2010 disclosures were mandated by the Securities and Exchange Commission (SEC) that ordered publicly traded companies disclose their climate change related data in their filings to help investors make more informed decisions. More than ten years later, and only a month after President Biden’s inauguration, the SEC released a statement regarding their intentions to revise these disclosure requirements and bring a greater focus to investment decision regarding climate change issues.

Acting Chair of the SEC makes a statement regarding climate change related disclosures

On February 24th 2021, the Acting Chair of the SEC, Allision Herren Lee issued a statement informing the public of the SEC’s goal to review climate change related disclosures. In the statement, Lee dictated that she had ordered the Division of Corporation Finance to “enhance its focus on climate-related disclosures” in public company filings due to the increased interest of investors to make investment decisions based on climate related issues. Because of the growing attention to the need for a change to be made regarding corporation’s emissions, many investors have been making their opinion known by choosing not to invest in companies that are contributing to the annihilation of our planet, making this call for increased regulation justified.

The SEC’s previous stances on environmental issues

This is not the SEC’s first time acknowledging the need for regulation regarding disclosures of climate change related topics. The SEC first addressed disclosures regarding environmental issues in the 1970s, although these guidelines were not very comprehensive. An overhaul of the SEC’s policy on climate change disclosures came in 2010 when the Obama Administration increased environmental regulation through various agencies. These new regulations for reduced emissions and carbon gasses had financial and operational implications on many publicly traded companies which instigated the need for the SEC’s regulation of disclosure of these factors to the public.

In order to legally issue securities, the SEC requires that a corporation comply and keep up with required disclosures regarding the corporation’s business. Rule 408 of the Securities Act of the 1933 Act and Rule 12b-20 of the Exchange Act of 1934 require a registrant to disclose, in addition to any of the information expressly required by the SEC, “such further information, if any, as may be necessary to make the required statements in light of the circumstances under which they are made, not misleading.” In their 2010 statement, the SEC was making clear that they interpreted this to include data regarding a corporation’s impact from climate change initiatives, including their carbon footprint. However, this initiative faced criticism by many because it does not include the force of a rule and lacks legal requirements for companies. Since it’s publish, the SEC only sent eleven companies letters informing them of possible violations of the guidance, but no regulatory action was taken.

The future of climate change disclosures

Because of the lack of authority the 2010 guidance provided, many experts are now speculating that if Lee’s call for increased attention towards the area of climate change will instigate the Division of Corporation Finance to implement a new ruling that would have force. The issue of climate change is one that Lee had frequently advocated for prior to her appointment as the SEC’s acting chair this past month by President Joe Biden and is likely one of the top items on her agenda. Some corporations have issued statements that they are in support of such an initiative for the greater good of our planet. However, there are various corporations that could face immense backlash if these types of disclosures are enforced in the future. For example, Bloomberg News recently reported that Exxon Mobile Corp. (XOM) intended to reduce its multi-billion dollar spending plan, which by consequence would release 17% more carbon dioxide emissions than they already do by 2025. This plan of course was not disclosed, but instead was published after leaked documentsemerged. Requiring disclosure of implications of budget reductions that could harm our environment, such as these, could help prevent investors from unknowingly contributing to this type of harm.