Washington, D.C. –
What’s happening: The Securities and Exchange Commission voted today to propose enhanced requirements for public companies to disclose climate risks to investors. The SEC’s proposal aims to provide a consistent, comparable regime on climate risk disclosures, but the breadth of the proposal will present challenges for registrants given data gaps and challenges around assurance of climate disclosures. It is unclear whether all of the required disclosures will translate into decision-useful information for investors.
What BPI is saying:
“The SEC’s action today targets a topic that is increasingly important to investors, and therefore it is important for the SEC to take a measured approach, recognizing the challenges associated with detailed climate disclosures and assurance processes. Banks are already actively engaged in initiatives aimed at giving consumers, investors and regulators a transparent view of climate-related financial risks. The SEC has recognized the need for appropriate transition periods for disclosing and providing assurance around Scope 3 emissions, in particular; however, the proposal may be overly ambitious given persistent data gaps. As a result, the SEC should proceed in a more measured and considered manner in terms of requirements for what must be included in financial filings.” – Lauren Anderson, BPI senior vice president and associate general counsel.
Why it matters: Climate disclosure requirements could result in changes to capital flows as investors look to reallocate capital amongst companies worldwide as the green economic transition unfolds. For banks, climate disclosures necessarily rely heavily on third-party or client data, which still has significant data gaps. Disclosures based on inaccurate information or proxy data points could imperil the ultimate goal of providing investors useful information.
Key takeaways:
- Consistency: The proposal aims to provide a more consistent, comparable landscape of climate disclosures for U.S. companies.
- Phasing: The SEC rightly recognizes that a phasing process is necessary for “scope 3” emissions and assurance. Such data is significantly challenging and time-consuming to source and validation capabilities are limited at this time.
- Financial filings: Further consideration should be given to what information is appropriate to include in regular financial filings, such as 10-K, given data gaps and challenges around verification.
For our previous work on climate, see the links below:
- Bank Climate Risk Guidance Needs Flexibility
- Are Loans to Carbon Intensive Firms the New Subprime?
- Does CRISK Really Measure Banks’ Exposure to Climate Risk?
- BPI Statement on FSOC Climate Report
- Credit Losses from Declining Industries: Lessons for Climate-risk Modeling
- The FSB’s Climate Roadmap—Are We on the Road to a New International Standard?
- BPI Statement on HFSC Consumer Protection and Financial Institutions Subcommittee Hearing on Climate Risk
- Green Lending: Is Regulatory Exuberance Irrational (and a Little Dangerous)?
- SEC Should Build off its Traditional Disclosure Principles When It Comes to Climate
- Climate Risk and Bank Capital Requirements
- Regulators Ask Banks To Assess Climate-Related Risks From Largest Counterparties, but Data Gaps Persist
- BPI Welcomes Dialogue on Climate-Related Risks as Senate Banking Committee Holds Hearing
- Get the Transition to Green Financing Right
- Climate Risk Test Asks Banks to Look Too Far Down the Road
- Challenges in Stress Testing and Climate Change
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About Bank Policy Institute.
The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.
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