U.S. Sens. Brian Schatz (D-HI) and Sheldon Whitehouse (D-RI) highlighted several priorities for the U.S. Securities and Exchange Commission (SEC) in its evaluation of climate change disclosure regulations.
“The market needs to know how exposed individual issuers are to climate risks and how they plan to manage their exposure. That information needs to be decision-useful to investors: detailed, tied to financial statements, and easily comparable across different companies,” Schatz said. “The SEC has the authority and the obligation to improve market efficiency and reduce systemic risk by mandating climate disclosure. And this must include disclosure of financed emissions: the contributions financial firms make to the climate crisis through their financing and investing work. We must ensure these firms’ stated climate goals are consistent with their actual business activities.”
In their letter to the SEC Chair Gary Gensler, the senators said the SEC should incorporating climate risk into audited financial statements so that auditors can evaluate whether the assumptions underlying financials are clear-eyed about the likelihood of such risks.
The disclosures should also include off-balance sheet activities that exacerbate this systemic risk, even if they do not pose an immediate risk to the financial firm.
Further, the lawmakers suggest that the SEC should incorporate climate disclosure into the prospectus issuers file with the Commission related to securities offerings. Also, the disclosures should include details on companies’ climate-related political spending and lobbying activities.
“The market will be a very powerful force for curbing climate change if investors can get the information needed to gauge financial firms’ real levels of exposure to climate risks,” said Senator Whitehouse. “Improved climate disclosure standards will also help ensure corporations – many of which have great stated policies on climate – are actually walking the walk when it comes to lobbying and investing,” Whitehouse said.
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