Will Biden’s SEC Adopt A Uniform Set Of Rules Directing Public Companies To Enhance Climate-Related Disclosures?


Acting SEC Chair Allison Herren Lee (a Trump appointee to the SEC who was designated as acting chair by President Biden until his nominee Gary Gensler - known in the industry as the “Money Cop” – is confirmed) directed SEC staff at the Division of Corporation Finance to “enhance its focus on climate-related disclosures in public company filings” with the intent to update the SEC’s 2010 guidance (“2010 Guidance”). The 2010 Guidance addressed the SEC’s general views on public companies’ disclosure obligations regarding Environmental, Social and Governance (“ESG”) issues especially in view of the increasing amount of regulatory oversight and mandates at the state and local level regarding climate change issues (e.g., the 2006 California Global Warming Solutions Act that restricts greenhouse emissions, the Western Climate Initiative (including seven Western states and four Canadian provinces, as well as the Midwestern Greenhouse Gas Reduction Accord comprised of six states and one Canadian province) that has been developed to restrict greenhouse gas emissions).

At the time of the 2010 Guidance, the 2009 American Clean Energy and Security Act also was pending (but was not enacted). Also noted in the 2010 Guidance was the fact that the insurance industry was factoring in climate matters. The National Association of Insurance Commissioners (“NAIC”) had promulgated a uniform standard for mandatory disclosure by insurance companies to state regulators of financial risks due to climate change and actions taken to mitigate them. On March 17, 2009, the NAIC adopted a mandatory requirement that insurance companies disclose to regulators the financial risks they face from climate change, as well as actions the companies are taking to respond to those risks regarding existing disclosure requirements as they apply to climate change matters. But the 2010 Guidance lacked specific uniform enforcement mechanisms and the momentum to impose any sort of mandatory disclosure scheme on public companies regarding ESG issues fizzled out and neither Congress nor the SEC followed up on the 2010 Guidance. 

The focus on ESG mandatory disclosures has reemerged especially after a year of COVID-related upheaval in the business world and the election of a new Democratic administration. Acting Chair Lee’s public statement provided: 

"As part of its enhanced focus in this area, the staff will review the extent to which public companies address the topics identified in the 2010 guidance, assess compliance with disclosure obligations under the federal securities laws, engage with public companies on these issues, and absorb critical lessons on how the market is currently managing climate-related risks. The staff will use insights from this work to begin updating the 2010 guidance to take into account developments in the last decade."

The question that remains is whether the SEC will adopt formal ESG disclosure requirements under Gary Gensler’s leadership. Gensler, previously served as the Chairman of the U.S. Commodity Futures Trading Commission and Chairman of the Maryland Financial Consumer Protection Commission has strong support among progressives.  His Wall Street reformation proposals have been credited for forming the backdrop of “the most progressive platform in the history of the Democratic Party.” Gensler is widely expected to oversee significant change at the SEC, including, most notably, the implementation of rules-based ESG disclosure requirements.
 

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About James M. Wilson, Jr.

James M. Wilson, Jr. is a Partner in Faruqi & Faruqi, LLP's New York office and Chair of the firm's Shareholder Merger Litigation Practice Group.

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