On February 24, the US Securities & Exchange Commission (SEC or Commission) and the International Organization of Securities Commissions (IOSCO), an international organization that brings together the world's securities regulators, separately announced increased efforts to promote climate-related disclosures in public filings. Then today, the Financial Stability Board (FSB) identified climate-related risks as one of its 2021 work program priorities.
This alert briefly describes these recent developments, which are likely the prelude to a Biden Administration that will seek to advance major climate change regulatory initiatives.
First, SEC Acting Chair Allison Herren Lee announced that the Commission's Division of Corporation Finance would "enhance its focus on climate-related disclosure in public company filings." Acting Chair Lee's announcement builds on the Commission's 2010 Guidance Regarding Disclosure Related to Climate Change regarding the Commission's existing public company disclosure requirements as they apply to climate change matters.
Acting Chair Lee's directive will result in division staff updating the 2010 guidance "to take into account developments in the last decade." We expect that this will result in the SEC, during the Biden administration, promulgating "a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures." Earlier this month, Acting Chair Lee highlighted the importance of climate and other environmental, social, and corporate governance (ESG) issues to the SEC with the hiring of its first ESG policy advisor for climate and ESG.
Second, IOSCO announced "an urgent need to improve the consistency, comparability, and reliability of sustainability reporting, with an initial focus on climate change-related risks and opportunities." Building on the work by its Sustainable Finance Task Force and its April 2020 report, Sustainable Finance and the Role of Securities Regulators, the IOSCO board identified three priority areas for improvement in sustainability-related disclosures by companies and asset managers: (1) encouraging globally consistent standards; (2) promoting comparable metrics and narratives; and (3) coordinating across approaches.
Given IOSCO's role as the global standard setter for the securities sector, as well as IOSCO's work with the G20 and the FSB, we expect that IOSCO will encourage domestic securities and capital markets regulators around the world to move their policies in a coordinated manner consistent with this announcement and future work by the Sustainable Finance Task Force. Importantly, both the SEC and the Commodity Futures Trading Commission (CFTC) are IOSCO members. Last year, the CFTC’s Market Risk Advisory Committee, sponsored by Acting Chairman Rostin Behnam, approved the Climate-Related Market Risk Subcommittee’s report Managing Climate Risk in the US Financial System. That report includes a number of recommendations for prudential and markets regulators that could be enacted by the current leadership at US and global regulatory agencies.
Finally, the FSB published its 2021 work program. The FSB is an international body that monitors and makes recommendations about the global financial system and coordinates national financial authorities and international standard-setting bodies as they work toward developing strong regulatory, supervisory, and other financial sector policies. The chair of the FSB is Randal Quarles, a member of the board of governors of the Federal Reserve System and vice chair for supervision. The FSB's 2021 agenda suggests that the FSB will "assess the availability of data through which climate-related risks to financial stability could be monitored," as well as "ways to promote globally comparable, high quality, and auditable standards of disclosure." The FSB will also "review regulatory and supervisory approaches to addressing climate-related risks at financial institutions."
The efforts of these organizations, as well as those of the Network for Greening the Financial System, a network of 83 central banks and financial supervisors that aims to accelerate the scaling up of green finance, could bring rapid change to the ways companies and asset managers approach climate-related disclosure in the future.