Climate Risk Scorecard
Securities and Exchange Commission
Significant Progress
Reasoning
The SEC has consistently recognized the widespread nature of climate risks to issuers and other entities that it regulates, and has continued this recognition since last year’s scorecard:
Chair Gary Gensler testimony before the Senate Banking Committee (September 2022)
Commissioner Jaime Lizárraga remarks at the Future of ESG Data conference (October 2022)
Senior Associate Chief Accountant Nigel James comments at the AICPA-CIMA Conference highlighting the SEC’s role on the International Financial Reporting Standards (IFRS) Foundation Monitoring Board, as well as the SEC’s 2010 climate disclosure guidance and 2021 sample comment letter (December 2022)
Chair Gensler testimony before the House of Representatives Financial Services Committee (April 2023)
ommissioner Lizárraga remarks at the North American Securities Administrators Association Public Policy Symposium (April 2023)
Commissioner Lizárraga remarks at the 2023 SEC Municipal Securities Disclosure Conference (May 2023)
In addition to these public remarks and publications, Ceres is aware of individual board members who have offered alternative views on the relevance, extent, or urgency of climate-related financial risks.
The SEC continues to work on its climate disclosure, ESG fund names, and ESG disclosure proposed rules, and Chair Gensler has held three climate- and ESG-related sessions for his Office Hours educational video series.
The SEC Investor Advisory Committee included a panel on ESG fund disclosure at its September 2022 meeting, which discussed greenwashing and the proposed climate disclosure rule. The agency also addressed climate and ESG in its FY 2022 Agency Financial Report, FY 2022-2026 Strategic Plan, FY 2023 Report on Objectives, FY 2024 Congressional Budget Justification, 2023 Examination Priorities, and 2023 Staff Report on Nationally Recognized Statistical Ratings Organizations.
Next Steps
Continue to publicly acknowledge the systemic nature of climate-related financial risk in agency speeches and publications. Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
We assessed the extent to which the agency has publicly affirmed the systemic nature of the climate crisis individually in official agency communications (outside of the FSOC report).Â
Significant Progress
Reasoning
In July 2021, the SEC appointed Mika Morse as climate counsel in the chair’s office. Staff have also been hired in various offices with significant climate background who are working on these issues, including on its Climate and ESG Enforcement Task Force and Climate and Sustainability Oversight Committee (CSOC), which were launched in 2021 and 2022 respectively. The CSOC provides recommendations on climate-related risks affecting the SEC’s own operations. The SEC also included climate-related disclosure work in its 2024 budget justification. Additionally, the SEC has invested significant staff time in reviewing the thousands of comments received in response to its proposed climate disclosure rule.
Next Steps
Continue work with the CFRC, CFRAC, FASB, ISSB, and interagency climate risk working groups, and initiate work with FLEC to assess the resiliency of financially vulnerable communities.Â
Continue internal staff education and training on climate-related financial risks, ensuring sufficient enforcement and compliance capacity and knowledge.Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
We assessed the extent to which the agency has expanded and established sustainable, well-resourced capacity “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability.” (FSOC 1.3).Â
This includes investments in staffing, appointing senior staff, forming internal working groups and/or committees, staff training, investments in technological and analytical capabilities, and financial resources provided to staff working on these issues.Â
Significant Progress
Reasoning
Chair Gensler regularly updates the public on the SEC’s climate- and ESG-related work through interviews, speeches, and Congressional hearings. The SEC has held dozens of meetings with interested parties concerning the climate disclosure rule, and included climate risks in the agency’s FY 2022-2006 Strategic Plan under two goals: “protect the investing public against fraud, manipulation, and misconduct” and “support a skilled workforce that is diverse, equitable, and inclusive and is fully equipped to advance agency objectives.” However, the SEC only discussed its work on climate risk to its own operations in its FY22 Agency Financial Report, and did not describe its climate and ESG-related risks.
The Office of the Investor Advocate’s 2023 Report on Objectives provided a detailed explanation of the SEC’s ESG and climate disclosure strategy and the importance of consistent, comparable disclosures for investors. The Office of Investor Education and Advocacy also includes a webpage dedicated to ESG investing and disclosure.
The Office of Credit Rating’s 2023 Staff Report on nationally recognized statistical rating organizations (NRSROs) identified ESG factors and products as potential risks to consider in NRSRO risk assessments and to incorporate into NRSRO exams. Similarly, the Division of Examination’s 2023 Examination Priorities report named ESG disclosures and labeling as a notable focus area.
Additionally, the SEC has a designated webpage for its climate and ESG activities, although this page is not regularly updated. The SEC also has a designated webpage for its Climate and ESG Enforcement Task Force, which includes multiple enforcement actions related to misleading investors.
Next Steps
Update the designated climate and ESG webpage to provide information on completed and ongoing climate risk-related activities, including the status of proposed rulemakings, current relevant supervisory guidance, what staff are assigned to these issues and what they are working on, disclose budgets and resources, and other recommendations in this section. Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
We assessed the extent to which the agencies have made information and data available to the public.Â
“[I]nclude descriptions of their activities related to climate-related financial risks in their annual reports and consider incorporating climate-related financial risks in relevant risk reports that they publish, as appropriate ... [and] within the context of each member’s mandate and authority.” (FSOC 1.4).Â
“[M]ake climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.” (FSOC 1.5).Â
No Progress
Reasoning
Ceres is not aware of any progress in this category.
The SEC has the authority to and should address aspects of racial and economic inequality. The SEC has previously issued an FAQ regarding an adviser’s fiduciary duty when considering factors relating to diversity, equity, and inclusion (DEI) in the selection or recommendation of other investment advisers, and approved Nasdaq rules which require issuers to disclose certain information about the diversity of the company’s board. Additionally, one of the SEC’s Office of Minority and Women Inclusion’s Strategic Plan goals is to use SEC resources and services in a manner that reflects diversity of investors and businesses. The SEC also provides several investor resources regarding affinity fraud, which may be based on common ties such as ethnicity and age, including resources specifically for Native American communities. Further, the SEC is a member of FLEC, and already provides resources and research on financial literacy.
The SEC has acknowledged the importance of providing investors accurate and comparable information on climate-related financial risks, and acknowledges the importance of financial literacy, diversity, and protecting investors from exploitation – the SEC should also undertake research to assess the intersection of these issues and engage with FLEC to this end.
Next Steps
Actively and transparently engage in interagency coordination on assessing risk to financially vulnerable communities, provide updates, and publish findings, such as advances made with the FLEC Climate Resiliency Group.Â
Consider the policy implications of climate-related financial risk supervision and regulation on LMI and BIPOC communities.Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
We assessed the extent to which the agency - consistent with its mandate and authorities and its membership in the Financial Literacy and Education Commission (FLEC) - has assessed and made progress on addressing climate risks to financially vulnerable communities. Â
“[C]oordinate the analyses of climate-related financial risks ... with their efforts to understand impacts on communities and households. FSOC members should, as applicable, integrate these analyses into the[ir annual] public reports.” (FSOC 1.6).Â
“[E]valuate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8). Â
“[FLEC members should] analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” FLEC members include the Fed, OCC, FDIC, NCUA, SEC, CFTC, and FHFA. (FSOC 1.9). Â
Some Progress
Reasoning
The SEC’s proposed climate disclosure rule included analysis of climate and related market risks, investor information demands, and the economics of the existing reporting baseline, proposed disclosures, and alternative reporting options. On May 10, the SEC hosted a Municipal Securities Disclosure Conference, which included discussion of ESG practices in the municipal market.
The SEC is also involved with the International Sustainability Standards Board, serving as members of their jurisdictional working group and the International Financial Reporting Standards Foundation Monitoring Board, which both work to develop and implement sustainability disclosure standards.
Additionally, the SEC is a member of the International Organization of Securities Commissions and has been participating as co-chair of a Technical Expert Group “to engage with the IFRS Foundation’s sustainability project” and “inform IOSCO’s views on its potential endorsement of the ISSB standards.”
Next Steps
Provide updates on the agency’s climate risk-related data collection and research, what additional data is needed, and its plan for collecting such data.Â
Provide easily searchable access to white papers, blogs, infographics, etc. that demonstrate data collection and research on climate-related financial risk and disclosure.Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
We assessed the extent to which the agencies have advanced research and data collection on climate risk. Â
“Identify[] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets.” (FSOC 2.1).  Â
“Perform[] an internal inventory of currently collected and procured data and its relevance for climate risk assessments." (FSOC 2.1).  Â
“Develop[] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.” (FSOC 2.1).  Â
“[F]acilitate the sharing of climate-related data across FSOC members and non-FSOC member agencies to assess climate-related financial risk, consistent with data confidentiality requirements.” (FSOC 2.2)   Â
“[D]evelop consistent data standards, definitions, and relevant metrics ... to facilitate common definitions of climate-related data terms, sharing of data, and analysis and aggregation of data.” (FSOC 2.5)Â
Not Applicable
Reasoning
This assessment category is not within the SEC’s mandate or authority.
Methodology
We assessed the extent to which the agencies have begun to assess, develop, and conduct climate scenario analyses at their supervised entities. Â
“[C]ollaborate with external experts to identify climate forecasts, scenarios, and other tools necessary to better understand the exposure of regulated entities to climate-related risks and how those risks translate into economic and financial impacts.” (FSOC 4.1).Â
“[U]se scenario analysis, where appropriate, as a tool for assessing climate-related financial risks, taking into account their supervisory and regulatory mandates and the size, complexity, and activities of regulated entities.” (FSOC 4.3).Â
“[C]onsider using common scenarios that build on existing work, including scenarios developed by NGFS and work at the FSB, as appropriate for the institutions and markets under consideration.” (FSOC 4.4).Â
Some Progress
Reasoning
As discussed in last year’s scorecard, the SEC has worked to improve climate-related disclosures through its 2010 Guidance Regarding Disclosure Related to Climate Change, 2021 Request for Comment on Climate Disclosure, 2022 proposed rule on Enhancement and Standardization of Climate-Related Disclosure for Investors, 2022 proposed rule on Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices, and 2022 proposed rule on Investment Company Names. The proposed climate disclosure rule would require “registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.”
The SEC reopened the comment period for this rulemaking in October 2022 to ensure that interested persons, including affected commenters, had the opportunity to comment on the proposal after a technological error was discovered in the submission process. The rule was originally slated to be finalized in spring 2023, but has attracted nearly 15,000 public comments, which the SEC continues to review in its work to finalize the rule. We recognize the enormity of this process and appreciate the work of the SEC to evaluate the detailed comments covering a wide range of technical issues. Additionally, the SEC amended its rules governing proxy voting advice, which enabled investors to more readily request climate-related information through shareholder proposals, and reminded issuers of their obligations to comply with the SEC’s 2010 interpretive guidance on climate disclosure. Between July 2021 and March 2023, the SEC’s Division of Corporation Finance sent 448 comment letters to 271 issuers that related either to its 2010 guidance or to greenwashing. The SEC’s Climate and ESG Enforcement Task Force also investigates ESG-related misconduct and brings enforcement actions related to misleading investors.
Next Steps
Move swiftly to finalize strong rules on climate disclosure and ESG fund disclosure.  Â
Direct the PCAOB to issue guidance to public company auditors on how they should assess the adequacy of climate change disclosures. Â
Engage the MSRB to consider how climate can affect the credit quality of municipal bonds and issue guidance on needed disclosures in the market.Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
We assessed the extent to which the agency has enhanced public reporting requirements for their regulated entities. The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk. Â
“[R]eview their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities.” (FSOC 3.1).Â
“[C]onsider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the TCFD.” (FSOC 3.2).Â
“[C]onsider whether such disclosures should include disclosure of GHG emissions.” (FSOC 3.4).Â
“[R]eview banks’ public regulatory reporting requirements to assess whether enhancements are needed to provide market participants with information on institutions’ climate-related financial risks, taking into account a bank’s size, complexity, and activities.” (FSOC 3.7).Â
Significant Progress
Reasoning
The SEC has enhanced risk management expectations and guidance through its climate-related disclosure, examinations, rulemaking, and ESG funds initiatives. This includes its 2010 Guidance Regarding Disclosure Related to Climate Change, 2021 Sample Letter to Companies Regarding Climate Change Disclosures, 2023 Examination Priorities which included ESG disclosures and labeling as a notable focus area, and climate disclosure, ESG fund name, and ESG disclosure proposed rules.
The Office of Credit Rating identified ESG factors and products as potential risks to consider in NRSRO risk assessments and to incorporate into NRSRO exams, and the Division of Examination named ESG disclosures and labeling as a notable focus area. Likewise, the Office of the Investor Advocate provided a detailed explanation in its 2023 Report on Objectives of the SEC’s ESG and climate disclosure strategy and the importance of consistent, comparable disclosures for investors.
The SEC has also reminded issuers of their obligations to comply with the SEC’s 2010 interpretive guidance on climate disclosure, while the Division of Corporation Finance continues to send issuer comment letters and the Climate and ESG Enforcement Task Force works to identify and address emerging ESG-related disclosure gaps that threaten investors and the market. The task force investigates and brings enforcement actions on ESG-related conduct that misleads investors. This included penalizing an asset management firm for failing to follow its ESG investment procedures and a mining company for misleading disclosure prior to a deadly dam collapse.
Next Steps
Move swiftly to finalize strong rules on climate disclosure and ESG fund disclosure.Â
Update and expand its industry-specific disclosure requirements to incorporate material, industry-specific climate-related metrics.  Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
We assessed the extent to which the agencies have enhanced supervisory scrutiny of climate risk management at their supervised entities to ensure their resilience and the resilience of our financial system.                Â
“[C]larif[y] or enhanced risk management expectations ... [and] guidance.” (FSOC 4.8).Â
“[R]eview[] regulated entities’ efforts to address climate-related risks." (FSOC 4.6).
“[R]eview[] existing ... guidance ... to identify where clarifications and enhancements are needed.” (FSOC 4.7).Â
Some Progress
Reasoning
As discussed in last year’s scorecard, the SEC has begun incorporating climate risk into its regulatory requirements through its proposed rules on Enhancement and Standardization of Climate-Related Disclosure for Investors, Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices, and Investment Company Names. The proposed climate disclosure rule would require “registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.”
Next Steps
Move swiftly to finalize strong rules on climate disclosure and ESG fund disclosure.  Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
We assessed the extent to which the agencies have incorporated climate risk management expectations into their regulatory requirements for supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management ... requirements.” (FSOC 4.8).Â
“[R]eview[] existing regulations ... and regulatory reporting to identify where clarifications and enhancements are needed.” (FSOC 4.7).Â
Significant Progress
Reasoning
The SEC has consistently recognized the widespread nature of climate risks to issuers and other entities that it regulates. The SEC’s recognition of climate as a systemic risk is evident in its work on climate change rulemaking, reviewing issuers’ disclosure, examination priorities, enforcement, funds, municipal finance, and international collaboration. Because it is not in the SEC’s mandate to focus on financial stability risks, the SEC has appropriately viewed systemic climate risks through the lens of regulation.Â
Chair Gary Gensler statement on the FSOC report (October 2021)Â Â
Chair Gensler remarks before the European Parliament Committee on Economic and Monetary Affairs (September 2021)Â
Chair Gensler testimony for Senate Committee on Banking, Housing, and Urban Affairs (September 2021)Â Â
Chair Gensler remarks before the Investor Advisory Committee (December 2021)Â
Proposed Rule: The Enhancement and Standardization of Climate-Related Disclosures for Investors (March 2022)Â
Methodology
Recognizing that climate change poses a financial stability risk is a critical first step for all financial regulators and will send an important message to all financial market stakeholders. Such statements are particularly important, given the complex nature of climate risks and continuing ambiguities about the extent to which the issue falls under specific agency mandates.Â
We assessed the extent to which the agency has publicly affirmed the systemic nature of the climate crisis individually in official agency communications outside of the FSOC report.Â
Significant Progress
Reasoning
The SEC has produced research and data on climate change risk to implement its statutory mandate to regulate risk disclosures to protect investors. In March 2022, the SEC issued a proposed climate disclosure rule that includes analysis of climate and related market risks, investor information demands, and economic analysis of the existing reporting baseline, proposed disclosures, and alternative reporting options. The proposal requests extensive research and data on key questions to aid in refining the SEC’s proposed approach and the agency’s understanding of climate risk and its impact on issuers and investors. These efforts fulfill the FSOC recommendation to identify data, perform an inventory, and develop a data procurement plan. Â
Methodology
Producing quality research and data is critical to assessing and addressing climate-related financial risks. As stated in the FSOC report, “Analyzing climate-related financial risks begins with measuring and assessing risks from climate impacts. To do this, data is needed that captures the drivers of physical and transition risks that could impact households, businesses, the economy, and the financial sector (page 48).” We incorporated this new category in the 2022 Scorecard to respond to these critical data gaps.Â
We assessed the extent to which the agency has advanced work to make progress on FSOC Recommendation 2.1:Â Â
“Identif[y] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets within the context of each FSOC member’s mandate and authorities; Â
Perfor[m] an internal inventory of currently collected and procured data and its relevance for climate risk assessments; and Â
Develo[p] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.”Â
No Progress
Reasoning
Ceres is unaware of any work the SEC has carried out to assess the risks posed by climate to financially vulnerable communities per FSOC Recommendations 1.8 and 1.9. Based on the SEC's statutory mandate, we understand this is not a direct, core responsibility. However, the SEC is a member of the Financial Literacy and Education Commission (FLEC), which is studying climate-related financial impacts on households, including financially vulnerable households in line with the FSOC recommendation that “Treasury Department engage other members of the Financial Literacy and Education Commission (FLEC) to analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations.” FSOC Recommendation 1.9 notes that “FSOC members that are also FLEC members should actively participate in [the FLEC’s] analysis.”Â
Next Steps
Make public the SEC’s involvement in FLEC and its work on assessing the resilience of financially vulnerable populations. Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
The FSOC report highlights the imperative to assess climate risks on “financially vulnerable communities,” given that “climate change disproportionately affects financially vulnerable populations potentially including lower-income communities, communities of color, Native American communities, and other disadvantaged or underserved communities.” This troubling reality is further compounded by the fact that vulnerable communities are “less likely to have the resources to protect and guard against damage to their properties or adequately deal with loss of income from an adverse climate or weather event (page 22).” While the significance of this issue is emphasized, it is qualified by an important warning against measures or actions that may unintentionally worsen existing inequalities.Â
We assessed the extent to which each agency, consistent with its mandate, authorities, and its membership in the Financial Literacy and Education Commission (FLEC), has advanced work to make progress on FSOC Recommendations 1.8 and 1.9: Â
“members, consistent with their mandates and authorities, evaluate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8)Â
“Treasury Department engage other members of the Financial Literacy and Education Commission (FLEC) to analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” (FSOC 1.9). Â
FLEC members include the Office of the Comptroller of the Currency, Federal Reserve, the Federal Deposit Insurance Corporation, National Credit Union Administration, Securities and Exchange Commission, Commodity Futures Trading Commission. Â
Significant Progress
Reasoning
Mika Morse was appointed in July 2021 as climate counsel in the SEC Chairman’s office. The SEC has also hired several other staff in various offices with significant climate background who are working on these issues.Â
Methodology
It is urgent that agencies establish sustainable, well-resourced capacity at the political and technical levels to address climate risk to meet the scale of the challenge and deliver on the administration and FSOC commitments.
We assessed the extent to which the agency has appointed dedicated staff to address climate risk to execute the agency’s climate commitments and FSOC recommendations. We assess, for example, the role, authority, and human and financial resources provided to staff dedicated to work on climate risk.Â
Significant Progress
Reasoning
SEC actions toward improving climate related disclosure include the 2021 Request for Comment on Climate Disclosure,the 2022 proposed rules on the Enhancement and Standardization of Climate-Related Disclosure for Investors (climate disclosure rule), and the 2022 proposed rule on Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices (ESG fund disclosure rule). The SEC has improved its reviewing and comment letter process regarding current filings and has been improving its proxy voting policies to allow investors to request more climate-related information through shareholder proposals. It has also reminded issuers of their obligations to comply with the SEC’s 2010 interpretive guidance on climate disclosure. The SEC Chair, other commissioners, and senior staff here made numerous speeches and presentations on these topics.Â
Next Steps
Further collaborate with the Financial Accounting Standards Board (FASB) to create more clarity on how climate disclosures can be incorporated into financial statements. Â
Direct the PCAOB to issue guidance to public company auditors on how they should assess the adequacy of climate change disclosures. Â
Engage the Municipal Securities Rulemaking Board to consider how climate change can affect the credit quality of municipal bonds and issue guidance on needed disclosures in the market.
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk. In response, the FSOC recommended that members:Â
“review their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities, consistent with their mandates and authorities.” (FSOC 3.1) Â
“consider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the Task Force on Climate-Related Financial Disclosure (TCFD)” (FSOC 3.2)Â
“consider whether such disclosures should include disclosure of GHG emissions” (FSOC 3.4)Â
Following on FSOC Recommendations 3.1, 3.2, 3.3, and 3.4, we assessed the extent to which the agency has enhanced public reporting requirements, consistent with its statutory mandates.Â
Significant Progress
Reasoning
The SEC has enhanced risk management expectations and guidance through its climate-related disclosure, examinations, rulemaking, and ESG funds initiatives. This includes a 2021 Sample Letter to Companies Regarding Climate Change Disclosures, its 2022 Examination Priorities, which include review of disaster plans with particular focus on climate risk impact, and proposals for ESG fund naming rules. Most importantly, the SEC published a proposed rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule requires “registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.”Â
Next Steps
Move swiftly to finalize strong rules on climate disclosure and ESG fund disclosure.  Â
*These recommendations, all within the SEC’s mandate and authority, are designed to address climate-related financial risks and protect our capital markets, financial system and investors.Â
Methodology
Supervision and regulation of climate risk is urgently needed to ensure the resilience of supervised entities and our financial system. Â
Following FSOC Recommendations, we assessed the extent to which the agency has “clarified or enhanced risk management expectations, guidance and requirements (FSOC 4.8).” We will also consider if agencies have:Â
“reviewed regulated entities’ efforts to address climate-related risks (FSOC 4.6)Â
“reviewed existing regulations, guidance and regulatory reporting to identify where clarifications and enhancements are needed” (FSOC 4.7)Â
The Securities and Exchange Commission (SEC) is charged with regulating securities markets and the securities industry. Its core mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Â
The SEC is tasked with a broad and diverse set of responsibilities. This includes enforcing the federal regulations that govern the securities markets and their participants, interacting with and educating investors, overseeing approximately $82 trillion in securities trading annually on U.S. equity markets, reviewing the disclosures and financial statements of approximately 4,300 exchange-listed public companies with an aggregate market capitalization of $30 trillion, and overseeing the Public Company Accounting Oversight Board (PCAOB) and the Municipal Securities Rulemaking Board (MSRB). Â
To guarantee fair access to the markets, the SEC requires public companies, fund and asset managers, investment professionals, and other market participants to regularly disclose significant financial and other information to provide investors with timely, accurate, and complete information that will inform their investment decisions. Â
The federal securities laws are based on the enduring principle that regulation of the capital markets is necessary to avoid “national emergencies, which produce widespread unemployment and the dislocation of trade, transportation, and industry.” Physical and transition climate risks present a profound, systemic risk to U.S. capital markets, combining in unexpected and correlated ways, with serious, disruptive impacts on asset valuations, global financial markets, and global economic stability. Efforts to achieve significant mitigation of GHG emissions are underway in many nations, and these policies are likely to affect businesses and financial markets in profound ways, such as changing business models and shifting capital flows away from carbon-intensive activities. Further, climate risk poses a variety of material risks to companies of all sizes in all industries across the nation, ultimately impacting investors, workers, and savers.  Â
The SEC plays a critical role in addressing the increasing call from investors lamenting the current weaknesses in climate risk data, and calling for more reliable and high-quality disclosures. To function effectively, capital markets need comprehensive, decision-useful data from enterprises facing material climate risks. Better climate disclosures would give investors and shareholders access to consistent, comparable, and reliable information, so that they can allocate capital in a manner that reduces risk. Similarly, climate risk offers opportunities for innovation, investment, and growth, and the SEC has a statutory mandate to identify, facilitate and enable the associated capital formation emerging from those opportunities. Â
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